Gift Aid allows UK charities to claim back the basic rate tax already paid on donations by the donor. This means that charities can claim back from the government on the taxpayer's behalf 25p for every £1 donated, boosting the value of the donation by a quarter.
In a recent case the courts refused to allow a man to amend his tax return in order to correct his error of declaring £400,000 instead of £800,000 in the charitable giving section.
Background to the case
Mr Webster's wife died on 4 August 2016. In her memory he established a fund with a charity with the intention of supporting children and young people from disadvantaged backgrounds. In the same tax year Mr Webster sold his company realising gains of £5.3 million. In the next tax year, 2017/2018, he made a donation of £800,000 to the charity. Although the donation was made in 2017/18, Mr Webster wanted to carry this back to 2016/17, a year in which he had a substantial tax bill.
As a result of the significant gains he had made selling his businesses in 2016/17, Mr Webster's personal tax position was unaffected whether he chose to carry back a donation of £400,000 or £800,000, hence Mr Webster claims he did not notice the error. He also did not question the calculation his tax software produced. The original tax return for 2016/17 was amended by Mr Webster to adjust the donation and an email sent to HMRC explaining that it was a transposition error and a genuine mistake not an amendment.
HMRC subsequently opened an enquiry under S9A of the Taxes Management Act 1970 (TMA) into both the Gift Aid relief and the business sale. HMRC made it clear that although section 426 of the Income Tax Act 2007 allows a taxpayer to carry back a donation to the previous tax year, the election must be made on an original return submission and not an amended tax return. They also noted that unless the amount of the donation and the tax return entry corresponded, Gift Aid tax relief would be denied. This meant that the charitable donation on the amended form was treated as if it were £0 in the tax year 2016/2017 and the donation was treated as being made in 2017/2018. The consequences for Mr Webster were significant.
HMRC issued closure notices confirming the consequences of the error, an additional £215,000 of tax, penalties and interest for the tax years 2016/17 and 2017/18. This sum included the tax liability on the entire £800,000 donation, as the charity had claimed the Gift aid relief.
How to avoid errors
It is important to check the information you have provided on your tax return before submission to ensure that the form is correct and complete to the best of your knowledge. Everyone has a responsibility to take 'reasonable care' over their tax affairs. This means doing everything you can to ensure the tax return and other documents you send to HMRC are accurate. Penalties may apply where errors or inaccuracies are found.
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