UK
21/11/2013 01:38 GMT | Updated 21/11/2013 04:13 GMT

Gift Aid Abuse Saw £170 Million Lost In Tax - Report

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Around £170 million worth of tax has been lost over the last year due to the abuse of relief on charitable donations, the public spending watchdog has found.

The National Audit Office (NAO) said that while Gift Aid was an "important source" of funding, worth £1 billion or 2% of charities' income last year, there was not enough evidence to show that relief on donations provided as much value for the sector as it could.

In its Gift Aid and Reliefs on Donations report, the NAO also highlighted a "serious compliance challenge" faced by HM Revenue and Customs (HMRC) in respect of relief on donations.

In a report, it said that HMRC only had a "crude" working estimate of £170 million for the amount of tax lost through avoidance, fraud and error for 2012/13, a total which may underestimate the scale of the problem.

The NAO said that while donors needed to have paid tax in order for charities to claim of Gift Aid, its analysis suggested the tax man may be paying a further £55 million in error where the donor has paid insufficient tax to allow the charity make a claim.

The report said the system was at risk from criminals who may falsify donations to generate a repayment of Gift Aid relief and set up a bogus charity as a front to commit fraud.

It said that while the proportion of bodies set up for the purpose of abusing their charitable status was "very small", when taken together their impact was significant, accounting for around £110 million of lost tax in 2012/13.

HMRC has been putting more focus on weeding out fraudulent claims since 2009, the report said.

Gift Aid allows charities to reclaim the equivalent of basic rate tax on donations made by UK taxpayers, subject to the donor filling out a simple form.

A donation is considered to be money which the donor has already paid tax on and Gift Aid allows charities to reclaim the basic rate tax from HMRC on its "gross equivalent" - the amount before basic rate tax was deducted.

As basic rate tax is 20%, this means for example that a £100 Gift Aid donation is worth £125 to the charity.

If the donor is a higher or additional rate taxpayer, the donor can also claim a reduction on their tax liability on the difference between their highest rate of tax and the basic rate.

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