06 December 2013

National Audit Office reports on Gift Aid

The National Audit Office’s report, published at the end of November provided a detailed review of the Gift Aid system, as well as estimates of the amount of tax lost through abuse.

The value of Gift Aid to the sector is £1billion a year, an amount which constitutes 2% of all charity income. The associated tax relief provided to individuals and businesses amounts to £940million.

The NAO identified Gift Aid as a key source of income to charities and since 2000 there has been a significant increase in the reliefs claimed by donors from £130million in 1999-2000 to £940million last year. HMRC is unclear whether the changes to Gift Aid have actually met the objective of encouraging more charitable giving.

In the wake of the Cup Trust inquiry, HMRC believes that £217million is at risk from marketed tax avoidance schemes, many related to Gift Aid, and that an almost equal amount of £170million was lost to tax last year through abuse of the reliefs.

One area which the NAO identified as problematic was where donors have paid insufficient tax to allow a charity to reclaim Gift Aid. The report estimates that £55million may have been paid out in this way in error.

The report concludes by stating that there is not enough evidence to suggest that Gift Aid provides value for money and recommends that HMRC and HM Treasury need to collect better evidence on the impact of Gift Aid on donor behaviour and consequently to tighten up HMRC procedures and focus on tackling avoidance.

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