HMRC more than doubled the number of investigations it made into claims for Gift Aid last year and raised an additional £6m in tax as a result, according to analysis by Wilkins Kennedy.
The firm says figures it has obtained show HMRC carried out 1,057 checks and audits of charity claims for Gift Aid tax relief in 2012/13, compared with 510 the year before.
The mis-use of charity reliefs as part of tax avoidance schemes, as in the case of the Cup Trust which was heavily criticised by the Public Accounts Committee and is now under investigation by the Financial Reporting Council, is one reason for the greater scrutiny.
John Howard, partner at Wilkins Kennedy, said: ‘HMRC is on the look-out for charities it believes have been set up for tax, rather than charitable, purposes and root out cases where the donors’ main aim is avoidance. Although cases of deliberate abuse or fraud are rare, when it uncovers anything suspicious, it’s going to use all the tools at its disposal to take action.’
However, Howard said that HMRC increased compliance activity is uncovering a number of instances where tax is being underpaid because of mistakes made by charities when administering the Gift Aid system, and warned that some charities would face penalties and the need to pay back tax with interest as a result.
Common errors include failure to take down details of a Gift Aid declaration properly, particularly where donations are made over the phone. Where donations made as a result of sponsored activities contain corporate donations, for example, by employers matching a staff member’s fundraising efforts, the value of the corporate donation needs to be separated for the purposes of any Gift Aid claim. There are also examples of charities claiming the relief erroneously on corporate donations, where a wealthy donor has used a corporate structure to make a gift and the charity is unable to demonstrate that the donation came out of the individual’s taxed income.
Howard said: ‘The Gift Aid system can be quite complicated to administer, particularly for smaller charities whose systems may not be quite up to the mark. Many charities are aware of the difficulties and are getting better at managing Gift Aid, for example by putting tracking systems in place to claim back tax on sales of donated goods. However, ensuring all the paperwork is correct and in place remains problematic for many.’
A consultation on an HMRC discussion paper looking at legislative approaches to prevent charities being set up specifically to avoid tax closed in mid-April, with government promising to release details of the findings shortly.
