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UK Charity Commission Under Fire

by Robert Lee, Tax-News.com, London

05 June 2013


The UK's Charity Commission has been criticized by the influential Public Accounts Committee (PAC) for its failure to put a stop to the abuse of charitable status by a trust "set up as a tax avoidance scheme by people known to be in the business of tax avoidance."

According to Committee Chair Margaret Hodge, the trust in question – the Cup Trust – never met the legal criteria to qualify as a registered charity. It was nevertheless registered as such by the Charity Commission in April 2009, with its only trustee the British Virgin Islands-based company Mountstar. Concerns were later raised about the Trust's governance and fundraising practices, and after a two year investigation, the Commission concluded in March, 2012 that it could not de-register the Trust as it was "legally structured as a charity."

The PAC's figures show that while the Trust generated so-called "income" of GBP176m (USD268.5m), only GBP55,000 of this has been given to charitable causes, and the Trust has claimed Gift Aid of GBP46m. Hodge claims that any good the Trust 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 Committee found it unacceptable that insufficient due diligence took place in this case, in spite of what it says were clear signals that ought to have prompted an early investigation. Had HM Revenue and Customs (HMRC) been involved in the process from the start, Hodge believes that the fact that Mountstar's directors were already well-known for their involvement in tax avoidance activities would have been made apparent.

Another cause for concern is that the Cup Trust case may represent what Hodge terms "just the tip of an iceberg." HMRC probes approximately 300 similar cases each year, and the PAC, in conjunction with the National Audit Office (NAO), has identified "severe shortcomings" in the Commission's performance. Its Chair and Chief Executive admitted to not reading the NAO's reports, and claimed to be unaware of the Committee's earlier findings, acknowledgements Hodge has labelled "shocking."

She considers the Commission's approach to regulation and enforcement to lack rigour, pointing to a failure to remove suspect trustees, carry out enforcement visits on any real scale, or mount many prosecutions. In light of this, the PAC will now carry out a further inspection of the Commission, and consider whether it is in fact "fit for purpose."

The Committee is also calling on the Commission to publish all the evidence related to its registration of the Cup Trust and to review the registration process.

TAGS: compliance | tax | business | tax compliance | tax avoidance | law | United Kingdom | Virgin Islands | enforcement | tax authority | HM Revenue and Customs (HMRC) | charities | revenue statistics | regulation | HM Revenue and Customs (HMRC) | British Virgin Islands

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