MPs say HM Revenue & Customs must do more on Gift Aid abuse

Margaret Hodge, chair of the Public Accounts Committee, says HMRC should provide more information to preserve public confidence in the tax system

Margaret Hodge
Margaret Hodge

The abuse of Gift Aid by individuals and companies risks giving the charity sector a bad name if HM Revenue & Customs is not seen to be doing more to address the problem, a report by the Public Accounts Committee concludes.

The report, Gift Aid and Other Tax Reliefs on Charitable Donations, published today, is based on evidence HMRC gave to the committee in December after the National Audit Office published a report on Gift Aid and other reliefs.

The PAC report says that one of the unintended consequences of the current system of reliefs on charitable donations has been individuals and companies exploiting loopholes in it.

"This type of abuse can give those reliefs and the charity sector a bad name if HMRC is not seen to be doing more to address the problem," it says.

HMRC has estimated that £170m was lost in 2012/13 through avoidance, fraud and error in the misuse of the reliefs. Larger sums are at risk from marketed avoidance schemes.

The report says HMRC has publicised the success it has had in prosecuting fraudsters and challenging the promoters of some marketed tax-avoidance schemes, but accepts its deterrents could be stronger.

It says that HMRC admitted that dealing with the "flagrant abuse of these reliefs has been an incredibly slow process".

The report says the sharing of information within HMRC and with other bodies, including the Charity Commission, has been inadequate.

The PAC says it is surprised that sharing of information has been so poor and that there has been a failure on both sides to work together effectively.

HMRC took legal advice to clarify what information it could share with the commission only after the publicity surrounding abuse of tax reliefs by the tax-avoidance vehicle the Cup Trust, the report says. Previously, HMRC would not tell the commission if a known promoter of tax-avoidance schemes was involved in running a charity, the report says.

It says that HMRC must improve how it shares information internally and work better and more closely with charity regulators.

Since 2004, HMRC has identified, investigated and challenged eight marketed avoidance schemes and concluded that they have misused reliefs on donations, the report says. But 1,800 cases, with £217m of tax at risk, remain open.

The PAC recommends that HMRC should promptly investigate schemes that appear to use reliefs on charitable donations in ways unintended by parliament and ensure it both penalises and maximises publicity of those who have misused reliefs.

In 2012/13, HMRC saved £44 in tax revenue for every £1 spent on compliance staff, compared with £21 for every £1 in 2009/10, the report says.

"This increased yield suggests that there is still some way to go in stopping losses through the misuse of these reliefs, but HMRC has not identified what resources it should invest in this area," it says.

Margaret Hodge, chair of the PAC and the Labour MP for Barking, said: "We were surprised that the sharing of information both within HMRC and externally, with such bodies as the Charity Commission, has been poor.

"HMRC should also go further in providing information to this committee as part of its work to preserve public confidence in the tax system."

A spokesman for HMRC said the government had invested £1bn in it to clamp down on avoidance, evasion and fraud, and since 2010 the number of people working to prevent the abuse of charitable reliefs had doubled.

"HMRC prevented £65m of tax being lost to avoidance in 2013, a four-fold increase from £16m in 2010," he said. "For every £1 spent on checking Gift Aid claims and charities’ tax affairs for compliance, we save £44 in tax.

"We take the threat of fraud and misuse of charitable tax reliefs extremely seriously and that is why we are sharing more intelligence than ever before with the Charity Commission when there is any suspicion of abuse."

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