Taxpayer penalised for tax return error on Gift Aid relief

29 September 2020 | Applicable law: England and Wales

In the recent case of Re Webster, 2020 EWHC 2275 Ch the English High Court upheld a decision against a taxpayer who made an error on their tax return regarding their charitable giving. This decision shows the importance of donors ensuring their tax returns are correctly completed, and the severe consequences of making a mistake.

The taxpayer had made a generous gift to the charity upon which he had claimed Gift Aid relief but had, by error, included a figure of £400,000 rather than £800,000 in his tax return. This donation was to be set off against his tax liability in a particular tax year, as in subsequent years he did not have sufficient liabilities to 'frank' the Gift Aid.

After the return had been submitted, the taxpayer noticed the error and contacted HMRC to seek rectification of his mistake. He was informed by HMRC that the relevant tax return would need to be amended, which created a bind. The taxpayer's original claim for relief was invalid without amendment, but should he amend the return he could no longer carry back the relief to the tax year in which he was able to claim it.

This had serious consequences for the taxpayer, who became personally liable for the £215,000 in Gift Aid refunds eventually received by the charity. He sought rectification of his tax return by the courts on the basis this was a disproportionate burden – especially as he had not received a benefit from his mistake in recording £400,000 rather than £800,000 in the defective return – and that his position was inequitable.

The court considered the taxpayer's error was as a result of his carelessness, noting that the return required him to declare it was 'to the best of his knowledge correct and complete'. In this context, and noting the taxpayer had not exhausted his means of appeal through the tax tribunal, they considered the equitable remedy of rectification was not appropriate to remedy his mistake.

We would advise all donors who are seeking to make significant gifts to charity within the Gift Aid regime to seek professional advice and assistance in accounting for the tax position and ensuring the charity can receive most benefit without creating risk.

This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.


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