HMRC Spotlight on Gift Aid with no real gift
HMRC have added another tax avoidance scheme to their Spotlight. This one seeks to exploit the Gift Aid provisions.
‘Spotlights’ is the page of HMRC’s website where they reference specific types of arrangements or scheme which they are likely to challenge. They also:
- Provide some advice on tax planning to be wary of, listing some indicators that they see as suggesting that a scheme may involve tax avoidance and which they are likely to investigate; and
- Identify specific schemes which, in HMRC’s view, are not likely to deliver the tax savings advertised.
The scheme that is highlighted as Spotlight 9 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. 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 as it is no better off than before entering the arrangements. Therefore Gift Aid is not due.
HMRC say they will challenge the reliefs claimed in any instances where this scheme has been used and will litigate where appropriate.