7.12.1 The charity will have at least 30 days from the date of the letter summarising the audit findings to resolve any problems identified. This may involve the charity having to obtain new appropriate declarations from donors.
This 30 day period will also apply to charities where the auditor has undertaken a sample review. Charities and CASCs can repair errors identified in a population within an audit sample, and HMRC will extrapolate the repaired error rate across the population (rather than the error rate found in the first instance).
Repaired means that the charity finds the missing declaration, or obtains a new (or fully completed) declaration from the taxpayer.
7.12.2 Also, HMRC will operate a de minimis limit when looking at error rates and tax recovery. An error rate of four per cent or less, calculated after the charity has had opportunity to repair the sample, for charities that claim under £2,500.00 Gift Aid per tax year or APE, will mean that the charity is not penalised for errors in their Gift Aid claims.
The size of the error rate, and the amount of subsequent tax repayable to HMRC in respect of the year of review will affect how the auditor seeks to conclude the case.
The following parameters will be followed:
| Repaired error rate | Amount at stake | Action at Audit 1 |
|---|---|---|
| Less than 4% | Less than £100 | No recovery in year of audit or earlier years. No card issued. |
| Less than 4% | Less than £500 | Recovery in year but not earlier years. No card issued. |
| Less than 4% | More than £500 | Recovery in year but not earlier years. 'Yellow' card issued. |
| More than 4% | Less than £500 | Recovery in year but not earlier years. 'Yellow' card issued. |
| More than 4% | More than £500 | Recovery in year and earlier years |
7.12.3 Where either the amount or level of errors is small HMRC will also introduce an optional 'yellow card' warning system to apply to earlier years rather than make recoveries for those years (see table above). 'Yellow cards' will be accompanied by advice on remedial action as to how the charity/CASC should prevent errors in its record keeping in the future. This will support charities and CASCs in understanding Gift Aid and rectifying errors for future claims.
The issue of a 'yellow card' has to be agreed by both HMRC and the charity involved. HMRC commits to only recover the tax due in respect of the year of review while the charity commits to take any remedial action HMRC think necessary to improve their record keeping. If agreement cannot be reached, HMRC will recover tax for both in year and earlier years based on the identified error rate.
If agreement is reached, but the remedial action has not been taken the next time HMRC examine the claims of the charity/CASC, they will go back and recover any earlier years that are still in date.
A further examination of the records following the issue of a 'Yellow card' will be discussed with the charity by the auditor at the conclusion of the original review. The period between the original review and the further examination (if required) will not usually be longer than 36 months, and may well be shorter depending on the circumstances.
7.12.4 Where errors have been identified and a settlement has been concluded on that basis, it may be possible for the charity to make new claims.
For example:
During an audit a charity may find that Gift Aid declarations are missing for some of the donations under review. The charity may review some or all of its records and identify donations for which no valid Gift Aid declaration is held. The charity may secure new declarations from donors to cover the donations in question and submit a new claim with respect to those donations.
7.12.5 Generally, a charity is able to claim a repayment of tax for four years prior to the current tax year. Such new claims are not restricted to the amount of the original estimate of the error.
7.12.6 Following an audit, a charity is not required to review declarations in respect of periods covered by claims that were the subject of the review - but the charity should make no further Gift Aid claims without first ensuring that a declaration is in place for each donor to be included in the claim.
7.12.7 Charities should ensure that any problems identified are properly addressed so that they do not recur.
7.12.8 HMRC are happy to work with charities to improve systems for processing donations and maintaining records.
