Gift Aid tax fraud rampant

Something worth up to 100 million pounds may be rotten in the coffers of charities across the UK, reported leading civil society magazine Third Sector on Tuesday.  The announcement came as new powers  for HM Revenue & Customs (HMRC) are being introduced, which allow the tax department to refuse tax relief to a charity if it believes a trustee or senior manager is not bona fide.

Figures ranging from £60m to £100m have been mentioned during Whitehall discussions to explain the introduction of anti-fraud legislation, explained the magazine which also said that sector experts believe the estimates are exaggerated.

Speaking to the magazine, Nick Brooks, who is head of a non profit organization and auditor at accountancy firm Kingston Smith said: “I don’t think they actually know the extent of fraud. When pressed for evidence …  they’ve never produced confirmed figures to support their estimates.”

It is thought that fraud in the UK is most likely to happen through Gift Aid, a policy that grants tax benefits to individuals who give to charity and which last year totalled 1 million pounds (1.2 million euros). Last April HMRC introduced a test to assess how trustworthy the employees of charities are called the “fit and proper persons test” at the same time as new legislation was being approved that allows EU charities to claim tax relief on donations from UK taxpayers. The fear was that Gift Aid would be claimed on donations to fake charities with headquarters in EU countries where regulation is less stringent.

According to a  HMRC briefing document extending reliefs without the new test would cost an additional £450m a year in fraud and with the test it expects fraud from Europe to be £150m a year by 2019.

Since April, many charity lawyers and accountants have pushed for UK charities to be exempt from the test. Speaking with hird Sector, Bill Lewis, a tax specialist at legal firm Bates Wells & Braithwaite, said: “If HMRC believes there is a high level of fraud, it should not increase bureaucracy but hire more staff,”

An HMRC spokesman said: “HMRC pays about £1bn a year to charities under Gift Aid. Such large amounts of money inevitably attract fraudsters. HMRC is constantly working to tighten its security processes to protect its customers and the exchequer.”

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