HM Revenue & Customs did not pursue a charity that had wrongly claimed £1m in Gift Aid because it would have been "too embarrassing", according to information provided to the Public Accounts Committee.
Margaret Hodge, Labour MP for Barking and chair of the committee, said at a meeting of the committee in parliament yesterday that she had received information from David Orbison, a former senior caseworker at the Charity Commission, about two cases in which HMRC had failed to pursue charities that owed tax.
In one case, involving a healthcare charity called Odyssey Tendercare, it is alleged that £1m was claimed in tax relief despite little charitable activity taking place, Hodge told the meeting.
Hodge quoted to the committee a submission from Orbison that said: "When my colleagues pointed out that there had been no charitable activity, the HMRC contact burst out laughing but said he would not take it up because it had been sanctioned by his boss and it would be too embarrassing for HMRC."
She was speaking at a one-off Public Accounts Committee evidence session looking at Gift Aid, following the publication of a report on tax relief by the National Audit Office. The report showed that almost 10 per cent of the tax relief paid on charity donations to both charities and donors last year could have been claimed through tax abuse or error.
Hodge said at the session that Orbison had told the committee that HMRC did not pursue another charity, the Jewish hospital charity Delapage, "because it was too large and too resource-intensive".
Delapage is subject to a Charity Commission inquiry after making £75m of unsecured loans to several companies run by one of its trustees.
Hodge said HMRC "turned a blind eye because you lacked the resources. Those were pretty serious allegations."
Lin Homer, chief executive of HMRC, told the committee: "We do take any information received in that fashion very seriously and I would be extremely disappointed in anyone putting their personal embarrassment ahead of doing the right thing."
But she said she had not seen any evidence that HMRC was "reticent about large and complex cases" and added that the scale of a case would not be a deterrent.
Orbison left the commission in 2010 over its treatment of a charity he was investigating and later won his case for constructive unfair dismissal at an employment tribunal, but lost on three other claims.