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Serious questions have been raised about the Charity Commission’s ability to be a regulator following a scathing interrogation before the Public Accounts Committee.
The Commission’s chair, William Shawcross, was criticised by MP Margaret Hodge, committee chair, for being unaware that The Cup Trust – recently in the headlines after it emerged that it was a scheme paying £46m in tax and only giving beneficiaries £55,000 – was a scam.
The Cup Trust employed an offshore bank loan to buy £1m gilts, which it then sold to investors who had paid a fee to join the scheme, for a nominal sum. The Trust then donated around £500 to charity on the investors' behalf. The investors then sold the gilts and 'donated' the money to the Cup Trust.
Since then the First Tier Tribunal has also ruled to protect £156m in tax from a scheme linked to the trust, devised by NT Advisors and sold by Dominion Fiduciary Services Group, which had 305 users.
‘The people behind it, NT Advisors, were well known to HMRC. Around the whole of the financial services world they were known for their prime business of avoiding tax. In saying this is a legitimate organisation, why didn’t you ask questions about the trustees, or look at some of their records or talk to your colleagues at HMRC?’ asked Hodge.
Shawcross said that the organisation ‘came to create a charity’ to give funds to other young people.
‘And we had no reason to believe that was not the case. This is a tax avoidance issue – it is not our issue. It is an HMRC issue. Public benefit is our issue,’ he said.
Referring to the £55,000 that The Cup Trust donated, Shawcross said: ‘I know it is not very much money but we have investigated… and they were given to legitimate charities.’
The Cup Trust’s income – cited from accounts presented before the PAC – showed it to have received £97,590,164m in income while its total expenditure was £97,451,195m.
The PAC questioned Shawcross about the failure of the organisation’s investigatory functions – as required by statutory law. Demonstrating the Commission's history of not making use of its statutory powers of investigation, the PAC quoted a previous report made 10 years ago by then-PAC member and current chancellor, George Osborne, in which he said: ‘You sit around having a cup of tea with the trustees, satisfied with what they have said.’
In addition, the PAC quoted the National Fraud Office’s figures –which estimated fraud in the charity sector at £1bn.
The Charity Commission could not cite any figures for how many trustees they had removed as a result of investigations, neither could they say how many had been suspended.
‘I can’t understand how you can run a regulatory body and not know what enforcement should be,’ said PAC member Stephen Barclay.
Shawcross answered saying, ‘I totally agree we should be able to do more investigating, if we had more resources. It is absolutely crucial in maintaining public confidence in the charitable sector.’
Hodge went further – saying the NAO had told the Committee of about 50 instances of tax avoidance activity by charities.
‘We have not found any evidence of that – and if we do – the lesson we take from this is that we will cooperate even more closely with HMRC than we do,’ said Shawcross.
HMRC’s chief executive, Lin Homer, told the PAC that 300 investigations were currently being conducted in the sector, while eight declarations had been made under the Disclosure of Tax Avoidance Schemes (DOTAS) rules.
‘The simple point to make is that if we take action to prevent a scheme working, that doesn’t of itself deregister a charity,’ said Homer.
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