Fraud, avoidance and error connected to gift aid and other tax reliefs cost the Exchequer £170m in the last tax year, and a further £217m of tax is still at risk, according to a Public Accounts Committee report published today.
In a report entitled Gift Aid and other tax reliefs on charitable donations, the PAC says that abuse of tax reliefs “risks giving the charity sector a bad name” and that HMRC is not doing enough to combat it.
The report says eight aggressive tax avoidance schemes involving charity have been identified in the last ten years, including the Cup Trust, a £176.5m tax avoidance scheme which over two years led to up to £100m of tax claims but only £55,000 of donations to charity.
The report says 1,800 individual taxpayers - 90 per cent of those subscribed to the eight schemes - are still claiming that they are entitled to tax relief. It says £217m is at risk as a result.
HMRC has not paid out any money as a result of these schemes, but many individuals who self assess their taxes will not have to pay anything unless their case is lost to tribunal.
HMRC prevented £44 of fraud for every £1 it spent checking Gift Aid claims, the report says.
“Dealing with the flagrant abuse of these reliefs has been an incredibly slow process,” the report says.
Not enough evidence that gift aid is effective
The report also says changes to the law on corporate gift aid intended to encourage more giving may actually have reduced the amount of money going to charity.
It says changes to corporate gift aid in 2000 which meant the corporate donor, not the charity, received the tax relief, may have reduced the amount received by charities.
“HMRC does not have enough information about the impact of changes to corporate gift aid, with some evidence suggesting the change may have reduced the income charities receive from donations by businesses,” the report says.
The report says HMRC’s attempts to share information with other parties, especially the Charity Commission, have been “poor” and “inadequate”.
“HMRC only took legal advice to clarify what information it can share with the Charity Commission after the publicity surrounding abuse of tax reliefs by the Cup Trust,” the report says. “Prior to this HMRC would not tell the Commission if a known promoter of tax avoidance schemes was involved in the running of a charity.”
It says that even HMRC’s own charities team had limited knowledge of work being carried out by other HMRC departments which process tax relief claims from individuals and businesses.
The report recommends that HMRC must work better with the sector to gather evidence of the impact of tax relief on donor behaviour, and set out a plan to share information with other agencies.
Sector responses
Jane Tully, head of policy at the Charity Finance Group, said that her organisation had been calling for better collaborative working between HMRC and the Charity Commission for several years.
“We are finally seeing real steps being taken by these organisations to improve the way they work together and hope that plans being put in place are implemented effectively to invoke real change,” she said.
She said gift aid had been complicated by anti-fraud measures which often blocked charities’ access.
“All too often schemes and initiatives which are intended to simplify gift aid seem to add further complications to overall framework and make it more difficult for charities to navigate,” she said.
John Hemming, chair of the Charity Tax Group, said: "This report will damage public confidence in charities, at least in the short term, and this will only be remedied when some of the PAC’s key recommendations are implemented.
"We look forward to seeing an improvement when the PAC revisits the Commission’s progress in a year’s time”.
