NEITHER the Treasury nor HM Revenue & Customs know whether Gift Aid and other tax reliefs on donations have resulted in more income for charities.
According to a National Audit Office report, the reliefs cost the taxpayer around £940m in 2012/13 while it is impossible to conclude that reliefs on donations in their current form provide value for money.
While the report recognises the importance of properly administering tax reliefs on donations in order to protect the reputation of the charitable sector and give confidence to donors, there is insufficient evidence that government has actively encouraged take-up of the reliefs. Secondly, it found, HMRC has not collected the data which would enable it to conclude how tax incentives since 2000 have affected donor behaviour or if they have increased the value of donations.
There have been issues, too, with tax avoidance schemes exploiting Gift Aid, with one case emerging in January of a registered charity – The Cup Trust – raising around £176m over two years from 2010 – more than the Royal Society for the Protection of Birds, the British Heart Foundation and the Salvation Army – yet only £55,000 was put towards its stated cause of “improving the lives of young children and adults”.
Instead, the tax scheme carried out transactions which artificially generated Gift Aid for donors, allowing them to drive down their tax bills. For example, someone donating £1m to the Cup Trust could expect to recoup most of their money and still be entitled to between £250,000 and £375,000.
Head of the National Audit Office Amyas Morse said: “Gift Aid is an important source of income for many charities, worth £1bn to charities in 2012/13. The changes made in 2000 to increase charitable giving resulted in a further £940m of reliefs going to individuals and companies as an incentive to give more money to charity. However, the exchequer departments cannot demonstrate that these incentives are working, or that the increased cost to the taxpayer has resulted in a rise in donations to charity.”
A government spokesman said: “The government is committed to encouraging charitable giving and since 2010 has made wide-ranging and generous reforms to the tax support available. Last year alone we paid over £1bn to charities through Gift Aid, but this is a longstanding relief and we want to make sure it keeps pace with changes in the way people donate.
“We have recently consulted with the sector on modernising Gift Aid and we work closely with charities to make it as easy as possible for them to claim tax relief. However, it is important too that appropriate controls are in place. In the last four years HMRC has doubled the number of staff involved in Gift Aid compliance, coming down hard on any attempts to abuse Gift Aid for any purpose other than delivering vital support to charities.”
Lord Howard Leigh of Hurley discusses the government’s initiatives to mitigate tax avoidance and evasion
Top 50+50: Demand for tax advisory services remains high, but fee pressure is expected in relation to compliance services
The demand for tax advisory services remains high and this looks to continue; but fee pressure is expected in relation to compliance services as the “Making Tax Digital” initiative is rolled out,
While some resistance to change is to be expected, the degree of controversy surrounding HMRC's Making Tax Digital proposals has surprised the government
Kevin Reed discusses the worrying findings from HMRC on micro-businesses' problems handling Real-Time Information, and the latest thoughts on how accountants can provide value-added services