Gift Aid is a brilliant way to top up your charity’s fundraising income, but what happens if you get it wrong with HMRC...? Boost your confidence with these expert tips from Gift Aid agony uncle, Barry Gower

One of the reasons put forward for the relatively low rate of recovery of Gift Aid the HMRC ‘fear factor’. Donors are concerned that this is a subtle way of HMRC finding out about their tax affairs, and charities are concerned about the draconian retributions HMRC may take if they get it wrong.

These fears are unfounded on both accounts:

• In reality, Gift Aid payments are a very small element of a person’s tax return. If HMRC wish to investigate a person’s tax affairs, their systems allow a far more in-depth analysis than just based on Gift Aid donations!
• HMRC understand that charities are often run by volunteers who may not have much formal accounting or administrative expertise. Generally speaking, and providing there is no evidence of deliberate fraud, HMRC will be more likely to adopt a less stringent and even compassionate view if they discover non-compliance.

What happens if you think you have not been compliant?

First and foremost, never ever try and hide the fact. The one thing that will definitely not endear you to HMRC if there is even the slightest hint that a charity is trying to ‘pull a fast one’. HMRC’s raison d’être is to take money, not give it a way, so you would be forgiven for thinking that there could be a reluctance and even possibly a reticence to do this, especially if they suspect that this is being done illegally. However, this is a double-edged sword which works in your favour – if the law is such that they are required to give it away, then they will do this in complete compliance, even though it may appear to fly in the face of their natural function.

This is in fact the case with Gift Aid – HMRC will happily pay out a Gift Aid claim provided it is in compliance with the Gift Aid requirements and regulations. And the way that you, the recipient charity, can ensure that this is the case is to maintain good supportive evidence of Gift Aid compliance and Gift Aid practice.

Gift Aid evidence is usually the Gift Aid Declaration together with a good audit trail of Gift Aid processing. Good Gift Aid practice is to have, and maintain up-to-date, a formal procedure of the operation of Gift Aid within your charity. This does not have to be a thick procedure manual, but there should be at least a formal document or file showing how Gift Aid is undertaken and what procedures are in place to account for various events or activities in dealing with Gift Aid.

So what do you do if it all goes wrong?

If you do find a situation where you feel there has not been compliance, the first thing to do is to stop immediately. Never assume that this is a small thing that HMRC will not notice. These things have a habit of coming to the surface, often for a different reason, and then this becomes the tip of a bigger iceberg.

The next step is to record and document exactly the history surrounding this event in as much detail as possible, both in qualitative and quantitative terms. Should this prove to be a material non-compliance the approach should be to take this to HMRC, rather than let them somehow discover this and then come to you.

This should be done with a view to building a case for presenting to HMRC on two fronts:

• How and why this situation came about, and all the evidence explaining this
• The reasons, supported by all the rules and regulations governing Gift Aid as to how and why these ‘deviations’ arose and an explanation and, if possible, justification for them. One relatively recent example is the way in which the rules for online giving have been modified as a result of the situation with JustGiving with the inclusion of family names.  

The above should however, under no circumstances be taken as an invitation to declare ‘open season’ on HMRC. In addition to there being definite rules and regulations on Gift Aid, HMRC also have an approach to the implementation of these rules. Charities should be very wary of trying to bend the rules or creating ‘schemes of arrangement’. While these may work in law, HMRC do have recourse to making life very difficult for such situations.

The reality is that HMRC do have a role to play, and need to be fair and seen to be fair, in the implementation of their rules. At the same time charities need to be aware that this is an equitable arrangement and that they should not be frightened of approaching HMRC in the event that they feel they have a case for utilising Gift Aid within the regulations. One of my most successful cases with HMRC ended with HMRC turning round to me and saying “ OK, convince me” – and I did, thereby  gaining my client a lot of additional funds through Gift Aid.

Barry Gower is a specialist consultant at GAIN The Gift Aid Consultancy, which offers a range of services to charities to improve their efficiencies and provide them with a measurable increase in income. bg@gain.me.uk