by Jack O'Sullivan DIOCESES in England and Wales may have to repay hundreds of thousands of pounds to the Inland Revenue, resulting from an investigation into church covenants.
Four dioceses have been singled out for thorough scrutiny by inspectors. One of them, Leeds, faces a possible bill of between £200,000 and £400,000. The names of the other three dioceses are being kept a closely guarded secret.
Church covenants are donations pledged to be given annually over a four year period. Many individual mass goers throughout the country have made such covenants. They must be tax payers to take part.
The Church, being a charity, can claim back from the Inland Revenue the basic rate of income tax on the donation, which has been paid by the donor.
This rebate is a valuable source of income to all registered charities. Last year, the Inland Revenue returned £107 million to charities throughout the country.
But in January 1985 preliminary investigations began in all dioceses in England and Wales to check that each was following covenant law. The inquiry quickly focussed on the four dioceses.
The Inland Revenue demanded that any parish, where more than 60 per cent of income is covenanted, must open its books to the inspectors of the charity branch.
It called on the four dioceses to prove that money, pledged through covenants, had actually been given. This is extremely difficult in some cases. A large amount of covenanted Church income comes in the form not of cheques, but rather in cash put on the Sunday collection plate.
The Inland Revenue has further challenged the Church over what donations to Church funds can actually be termed "covenantable".
A spokeswoman for the Inland Revenue said this week that if a diocese declared that it has received certain covenanted donations, claimed back the tax, but subsequently was found not to have received such donations, it could be liable's° a demand for repayment.
High level talks are currently taking place between a national committee of diocesan finance
officers and the Inland Revenue, in an attempt to resolve the crisis. Chairman of the committee, Canon Nicholas Rothon confirmed to the Catholic Herald that negotiations had reached a "very delicate" stage.
The investigation into church covenants is being seen as a general crackdown on covenants to charities and not just those to the Catholic Church. Last year, the Inland Revenue successfully prosecuted an employee of the accountancy firm Price Waterhouse for fraud in dealing with covenants.
This week a Church of England spokeswoman said: "There have been a few isolated instances where parishes have not provided adequate records of deeds of covenant".
As a result of the Inland Revenue inquiry there is expected to be a tightening up in the administration of covenants in the parishes generally. One problem which has arisen during the investigation is that of people continuing to covenant when they were no longer being taxed. The Inland Revenue said this week that in such a case the covenantor, not the diocese would be liable to repay the Inland Revenue.