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HMRC have published Spotlight 9, which focuses on gift aid with no real gift.
The department says an avoidance scheme exploiting the gift aid provisions has recently been disclosed.
The scheme uses the rules that enable a charity to claim a repayment of tax at the basic rate on a qualifying donation by an individual, who 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 of, for instance, 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. This is on the basis that no gift has been made to the charity, because it is no better off than before entering into the arrangements.
The Revenue adds that it will challenge the reliefs claimed in any instances in which the scheme has been used, and the department will litigate where appropriate.
