A Cardiff-based childrens’ charity which owes HMRC nearly £400,000 of gift aid after it mistakenly claimed for its overseas activities, told civilsociety.co.uk the error was down to a lack of guidance.

The Joshua Foundation had been claiming gift aid for its overseas projects until 2005, and still owes HMRC £321,000. It is currently selling off property to pay the bill.

In its latest accounts of September 2011, the charity's income stands at £428,000, with £369,762 worth of tangible assets. The charity recently sold off some of the land it owns in Australia, and plans to sell a house in Fishguard, Pembrokeshire, to help with the debt – although this property cannot be disposed of without Court consent.

Claiming on overseas activities

The Foundation was established in 1998 by Sarah Cornelius-Price and named after her son, who died of cancer only months later at the age of seven. It provides holidays and trips for terminally ill children.

Cornelius-Price revealed to civilsociety.co.uk the full extent of how her organisation ended up making such a costly mistake with its gift aid claims.

“In the first seven years we heard about gift aid from a conference and thought ‘fabulous, we can claim on donations’,” she said. “Basically we were claiming on our biggest project, which is ‘the Oz experience’ in Australia.

“Because we were none-the-wiser and there wasn’t an awful lot of guidance out there, it was a mixture of claiming on things that we shouldn’t – like the overseas expedition, which 99 per cent of the time you can’t claim on – and HMRC judging that our paperwork on some legitimate claims was insufficient to match its standard.”

This continued until 2005, when after enquiring with the HMRC into another matter, the body realised that there had been gift aid erroneously claimed over the last seven years.

“It recognised, by mutual agreement, that some of the rules were not understood by charities and there were some grey areas where they hadn’t thought out the policy with regards to certain types of projects.

"Our Oz project presented them with a dilemma, because 50 per cent of the money pays for their trip to Australia and 50 per cent comes to us. So there was a lot of discussion about what we could actually claim on, and they came back us and said that we could claim on sponsorship money for the trip, as long as it wasn’t a relative or a person living at the same address as the person travelling."

Understanding with HMRC

In the end HMRC said that it didn’t expect the Foundation to pay back the full amount – approximately £398,000 – straight away. "So we came to a mutual agreement," said Cornelius-Price. "They didn’t want our work to be affected, so we agreed that no money would be paid back through fundraising or donations.” Instead it would be claimed through future gift aid claims, for which HMRC sent the Foundation a detailed list of rules and regulations.

Cornelius-Price said that their story should act as a cautionary tale for other charities, especially those with overseas interests. She described HMRC as “helpful and approachable” with the matter.

It is not HMRC’s policy to comment to the media on specific cases, but the Charity Commission did reveal to civilsociety.co.uk that it engaged with the charity in 2010 about financial and governance issues including the debt to HMRC, the land in Australia and the management of conflicts of interest.

No Charity Commission action

“We found the trustees were taking steps to address the concerns,” a Commission spokeswoman said. “There was no further regulatory role for the Commission.

“We did engage with the charity for an update in last month, as their accounts were not showing that they had taken steps to address the concerns. They explained that they have sold the land in Australia, and plan to sell off another asset to pay off debt. They have recruited five trustees who include people with experience of legal and accountancy, who will be starting in February.

“The situation is currently of no regulatory concern to the Charity Commission. We are not currently engaged with the charity and are satisfied they are addressing the issues. We are not investigating the charity.”