Gift Aid with no real gift (Spotlight 9)
Published 5 August 2010
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An avoidance scheme exploiting the Gift Aid provisions has recently been disclosed to HM Revenue and Customs (HMRC). The scheme seeks to exploit the rules, which enable a charity to claim a repayment of tax at the basic rate on a qualifying donation by an individual. In the correct circumstances, the individual may claim relief for the donation on the difference between the higher and basic rates of tax.
The scheme depends upon a circular series of payments. It starts with the charity purchasing, say, gilts of £100,000 which pass through a third party to an individual taxpayer for perhaps £10. The taxpayer is expected to make a sale for £100,000 and pass the money to the charity. There is an option that ensures the gilts will be returned to the charity if it does not receive a cash gift of £100,000 within one or two days.
HMRC do not accept that the charity is entitled to a repayment of tax or that Gift Aid relief is due to the individual. In HMRC’s view, a gift has not been made to the charity. This is because the charity it is no better off than before it entered in to the arrangements. Therefore Gift Aid is not due.
HMRC will challenge the reliefs claimed in any instances where this scheme has been used and will litigate where appropriate.