Crackdown rethink

The Inland Revenue has switched to risk assessment as a basis for toughening its crackdown on tax avoidance among charities.

The move was revealed to the Public Accounts Committee as MPs warned of concerns about the accuracy of the Charities Commission register as a basis for decisions on exemptions.

The Revenue revealed it has gained on-line access to a computerised commission register and has introduced a new risk-based targeting system for charity audits, based on size of repayment claims, previous audit history and charity type.

The 6,400 charities that claimed the largest tax repayments will be audited on a ‘three- to ten-year’ cycle, including 20% of charities which have never received a Revenue visit.

MPs said the new approach, including summoning accounts from selected target charities instead of random checks on accounts that have been sent in, should be more effective.

But they were concerned that 20% of accounts investigated took more than three years to settle – and were told this was because caseworkers had not been tough enough.

Jeremy Hopkinson, charity tax partner with Binder Hamlyn, said he was not surprised to see the Revenue clamping down on its control of the voluntary-sector tax regime. But he was critical of the way officials had gone about it.

‘Yes, they are trying to tighten up,’ he said. ‘At the same time, they are not being successful at what they are doing.’ He also questioned the timing of the move. ‘It is a bit curious in terms of timing because we are waiting for the government’s tax review of charities. That may change a lot of the rules,’ he said.