Tax avoidance has been a high-profile topic in recent years, and charities have not been immune from the efforts of HM Revenue & Customs to close any perceived loopholes and bring in as much money to the Exchequer as possible.
A National Audit Office report from 2013 said that a new approach by the charities team at HMRC had led to a four-fold rise in the tax it recovered between 2009/10 and 2012/13. For every £1 invested in the charities team, the report said, HMRC could expect a yield of £44, compared with an average of £11 across its work as a whole.
"If I was HMRC, I'd be saying charities seem like quite a good investment," says Richard Bray, vice-chair of the Charity Tax Group. "As HMRC has come under more scrutiny from the NAO, there seems to be less room for leniency or flexibility.
Discretion is also less likely when HMRC's resources are stretched by the ongoing cuts in resources."
One lawyer reports a harsher approach by HMRC, citing the case of a small charity that put an erroneous message on its website saying that donors could cancel Gift Aid on donations within 30 days. Although it was just a "foolish" mistake and no one tried to act on it, he says, HMRC came down hard on the charity.
"Nobody had been defrauded, but HMRC seemed to be using the mistake as an excuse to have a go," says the lawyer, who asked not to be named. "I don't think that they're doing good in the long term by hitting charities in this way."
Graham Elliott, a VAT consultant, says HMRC has been taking a tougher line on charities that reclaim VAT. Sometimes its approach "has been misguided and based on unsustainable theories relating to how much your earned income covers costs", he says.
An example of this, he says, was the appeal by HMRC against a tribunal decision that the University of Cambridge was entitled to recover input VAT on the investment management fees incurred through managing its endowment fund. The Upper Tribunal upheld the First-tier Tribunal's decision.
Elliott says the hardening of approach is further illustrated by the Longridge on the Thames case: HMRC has twice been defeated in the tax tribunal in its attempt to make the charitable watersports centre pay VAT, but is now having a third go. The issue is whether VAT should be paid on a new building and the definition of "non-business".
Elliott says: "We cannot expect HMRC to avoid making arguments that would increase tax revenues, but some of its tactics in doing so can seem a bit desperate, and it shouldn't blame us for pushing back in such cases."
In her monthly Third Sector column for August, Caron Bradshaw, chief executive of the Charity Finance Group, argued that HMRC's current approach reinforced the case for a root-and-branch review of the tax system, with special reference to the position of charities.
Third Sector put a number of questions to HMRC about balance, leniency and any change in its attitude. "Most charities play by the rules – we tackle the small minority that don't," says a spokeswoman. "HMRC applies the rules in the same way to all customers."