Bond washing is a tax-avoidance technique whereby a bond is sold as it is due to pay interest or its dividend, and then bought back at a lower price - this results in a capital gain for the original vendor. UHY Hacker Young has pointed out that charities can not gain a tax advantage in this way, as they are already exempt from income and capital gains tax. This, it said, amounts to HMRC trying to tax profits that would ordinarily be tax-free.

Roy Maugham, tax partner at UHY Hacker Young, said it appeared as if HMRC was working its way alphabetically through its list of charities, and that few would escape the trawl. He added: “If companies are evading tax through bond washing, HMRC should tackle the problem at the source, but charities are soft targets who may feel they have to co-operate with HMRC or risk losing their tax exempt status.”