Charity Commission: the Cup Trust and tax avoidance report published

• Report: Charity Commission: the Cup Trust and tax avoidance (HTML)
• Report: Charity Commission: the Cup Trust and tax avoidance (PDF)
• Public Accounts Committee

The Rt Hon Margaret Hodge MP, Chair of the Committee of Public Accounts, today said:

“My Committee does not believe the Cup Trust ever met the legal criteria to qualify as a registered charity. Its purpose was to avoid UK tax.

 

“Despite its staggering level of ‘income’, £176 million, the Trust has only ever given the paltry sum of £55,000 to charitable causes – 3p for every £100 it received in donations. Any good this did was far outweighed by the potential loss from tax avoidance, as well as the damage to the reputation of the Commission and charity sector.

 

“The Trust’s true purpose might have been easily detected by the Charity Commission had the latter they carried out a few elementary checks carried out more checks before registration, including with HM Revenue & Customs. The Trust’s sole trustee was Mountstar, an entity based in the British Virgin Islands whose directors are already well-known to HMRC as being involved in tax avoidance. 

 

“However, it was only after it had registered the Trust as a new charity that the Commission found out that it had been set up by people active in tax avoidance schemes. The Commission has investigated but a year later its findings have not been published.

 

“HMRC told us that it investigates 300 similar schemes a year. This strongly suggests that the Cup Trust case is just the tip of an iceberg.

 

“The Charity Commission’s approach to regulation and enforcement lacks rigour. It has carried out few enforcement visits, rarely mounts prosecutions and removes very few trustees.

 

“Over the past 25 years, the Committee and NAO have repeatedly found severe shortcomings in the Commission’s performance. We were shocked  to hear the Chair and Chief Executive admit that they had not bothered to read the NAO’s reports, and were unaware of the Committee’s recommendations.It appears that the Commission has simply failed to seriously consider and implement our previous recommendations. We will now undertake yet another thorough investigation of the Charity Commission and whether it is fit for purpose.

 

“The Commission should now publish all the evidence that led it to register the Cup Trust in the first place, and urgently review its conclusion that the Trust meets the legal definition of a charity. If the Trust is legally a charity, then the Commission should look into how the law should be changed to prevent similar organizations being granted charitable status.”

Margaret Hodge was speaking as the Committee published its 7th Report of this Session which, on the basis of evidence from the Charity Commission and HM Revenue and Customs, examined the Cup Trust and the Commission’s procedures for regulating charities.

Cup Trust

The Charity Commission (the Commission) registered the Cup Trust (the Trust) as a charity in April 2009, with a company called Mountstar—based in the British Virgin Islands—as its only trustee. Although the Trust generated ‘income’ of £176 million, only £55,000 has been given to charitable causes, and the Cup Trust claimed Gift Aid of £46 million.

Despite its declared charitable aims, it is clear that the Trust was set up as a tax avoidance scheme by people known to be in the business of tax avoidance.

Public expectations

The Trust does not meet the public expectations of a charity and it is unacceptable that the Commission has not been able to put a stop to this abuse of charitable status. In the first instance, it is unacceptable that the Cup Trust was registered and that insufficient due diligence took place to check that there was a clear public benefit to its purpose.

From the time when the Trust was first registered as a charity, there were clear signals that should have prompted an investigation by the Commission. Elementary checks with HMRC could have alerted the Commission to the true purpose of the Trust and its trustee. By the Commission’s own admission, the continued registration of the Trust has been ‘disastrous’ for the reputation of the Commission and the charity sector.

Investigation

The Commission began to investigate the Trust in March 2010 following concerns raised about its governance and fundraising. This investigation closed in March 2012. The Commission eventually concluded that it could not de-register the Trust as it was “legally structured as a charity”, despite not being for exclusively charitable purposes.

The Commission has not yet published the results of this investigation a year after it concluded. Neither has it brought forward proposals to change the law to exclude organisations like the Cup Trust from the register.

Tax relief & Gift Aid

We were encouraged to hear that HMRC has not paid taxpayer tax relief or Gift Aid on the basis of such a scheme. We are concerned, however, that the Cup Trust case may just be the tip of an iceberg. HMRC told us it was aware of around eight other schemes relating to charities, and investigates about 300 similar schemes a year.

The Commission told us that there are many charities or trustees registered abroad and since the hearing has provided us with information about how many have been set up in some tax havens.

Commission's powers

In the last 25 years, the Committee and the NAO have repeatedly found severe shortcomings in the Commission’s performance, particularly in relation to investigation and enforcement. In 2001 we called on it to make more use of its statutory powers. Yet still the Commission hardly uses these powers at all.

In the last four years it has only removed one trustee, only suspended four trustees or officers of charities, and only appointed interim managers of charities on five occasions. We were shocked to hear the admission by both the Chair and Chief Executive of the Commission that they had neither read the NAO’s reports, nor were aware of the Committee’s earlier findings.

While recognising the financial constraints the Commission shares with the rest of the public sector, we are not convinced that the Commission is targeting its available resources to best effect. We look forward to the Comptroller and Auditor General’s forthcoming review of the Commission’s approach to the registration of charities and enforcement of charity regulations.

Further information

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