Audit system changes threaten Gift Aid claims

Charities are at risk of losing hundreds of thousands of pounds of income from Gift Aid because of a change in auditing practices by HM Revenue & Customs.

The change was introduced in August last year without announcement or consultation, and many charities are still not aware of the new regime.

"One big charity we know of could lose hundreds of thousands of pounds because of this," said Helen Donoghue, director of the Charities' Tax Reform Group. "We want HMRC to go back to the previous system."

HMRC assesses whether Gift Aid claims are valid by looking at a sample of a charity's claims and then applying an error rate to all of them.

Until last year, officials would allow charities to 'repair' faulty claims in the sample and use the resulting corrected error rate across the board.

In the new system they are allowing 'repaired' claims for the sample only, and the error rate they discover initially is being applied to claims not in the sample.

However, charities are being told that if they find and repair any faulty claims outside the sample, these will also be allowed.

"We found out in March and protested vigorously," said Donoghue. "HMRC acknowledged that charities should have been informed."

Donoghue said the CTRG fully recognised the need for charities to get things right and keep good records. But many charities had not had an audit since the new Gift Aid system was introduced in 2000 and some might have made genuine mistakes in their claims that could be rectified.

She said HMRC officials had been reviewing the position and she hoped the former system would be reinstated. She pointed out that errors in the sample might not exist in the rest of the claims "given that it is a statistical exercise in the first place".

Donoghue added: "If the former system is not reintroduced, we have urged HMRC to give charities time to resolve matters before introducing the new system."

A spokesman for HMRC said: "A donation either qualifies for Gift Aid or it does not. If it does not qualify for Gift Aid then no Gift Aid will be paid.

"However, a donation that does not qualify for Gift Aid might subsequently be made to qualify by an appropriate declaration being made by the donor with retrospective effect."

At first the CTRG campaigned behind the scenes in the hope that the original basis of establishing the error rate would continue. The group is now alerting organisations at events and conferences and seeking information on their experiences.

Gift Aid, introduced in 1990, allows charities to reclaim tax on donations. The sum repaid was £625m in 2005, up from £222m in 2000.

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