Margaret Hodge says alarm bells should have rung over Cup Trust, run by creator of Jimmy Carr’s tax scheme
MPs have attacked the charity watchdog for its “astounding” failure to close down a fake charity that gave just 3p out every £100 of donations to good causes.
Margaret Hodge, chair of the influential public accounts committee (PAC), said that if the Charity Commission had “only bothered to pick up the phone” to the tax authorities it would have discovered that the Cup Trust charity was a front for a multimillion-pound tax-avoidance scheme.
The Cup Trust, the claimed objective of which was to “improve the lives of young children and adults”, donated just £55,000 of its “staggering” £176m income to charitable causes. Despite its scant donations, the trust used a complex web of transactions to seek £46m in gift aid, and its “donors” claimed £55m in charitable-giving tax relief.
Hodge said it should have been obvious to the commission that the trust, which was founded with only one trustee, in the Caribbean, had been “set up as a tax-avoidance scheme by people known to be in the business of tax avoidance”.
The Cup Trust was controlled by Matthew Jenner, the boss of NT Advisors, who Hodge said was “already renowned in HMRC” for setting up tax-avoidance schemes.
Other schemes set up by NT Advisors – the initials stand for “no tax” – include those used by the comedian Jimmy Carr and the TV presenter Chris Moyles. HMRC has won three successive tax-avoidance cases against the Jersey-based NT Advisors, including one case last week.
“It is so astounding,” Hodge said. “It stares you in the face. Yet it didn’t appear to raise any questions [with the commission] before it was registered. If only someone had bothered to pick up the phone and ask them [HMRC] about NT Advisors. Elementary checks with HMRC could have alerted the commission to the true purpose of the trust and its trustee … Its purpose was to avoid tax.”
Hodge said it was remarkable that HMRC had not queried why the Cup Trust, which collected more annual “donations” than the RSPB, the British Heart Foundation or the Salvation Army, had just one trustee: Mountstar, based in the British Virgin Islands. The directors of Mountstar are also the directors of NT Advisors. “Alarm bells should have rung,” she said.
A public accounts committee report said the trust operated by buying £176m of government bonds, known as gilts, which it sold on to “donors” for only £17,000.
The donors, whom Hodge described as “Jimmy Carr types”, sold the gilts and donated the proceeds – which were roughly the same as the purchase price – to the charity. In doing so, they were able to try to claim £55m in charitable-giving tax relief.
The trust went on to claim £46m in gift aid from HMRC. The tax authorities have not paid the claim, vowing to stop “tax dodgers” from exploiting charitable tax relief.
If the scheme had worked, Jenner and his partner, Anthony Mehigan, could have collected 5-10% of the tax saved for their wealthy clients. Tax experts said the pair may have already collected some fees in advance.
Hodge described the exploitation of charitable status by tax avoiders as “repugnant” but warned that there were “devils in this world” who would continue to exploit well-intentioned government tax-relief measures.
The PAC report said it was “unacceptable” that the Cup Trust had ever been allowed to register as a charity, and it was shocking that the commission had failed to close it down when it investigated it, between 2010 and 2012.
“In the last 25 years, the committee and the National Audit Office have repeatedly found severe shortcomings in the commission’s performance, particularly in relation to investigation and enforcement,” the report said.
In the last four years, the commission has removed only one trustee,after a judge ruled that he had perjured himself, and appointed only five interim managers to run suspect charities.
Hodge said the commission appeared to have “simply failed” to implement the PAC’s previous recommendations, and said her committee would now “undertake yet another” investigation into whether the regulator for charities in England and Wales is fit for purpose.
The commission said it had opened a new statutory inquiry into the Cup Trust, but not until after its chairman was hauled before the PAC, in March. It has also appointed an interim manager to run the charity, in a move that Mountstar has challenged.
A spokeswoman said the commission was “discussing better ways to share information and work together to tackle abuse of charity. We are targeting our resources on the areas of highest risk, with a particular emphasis on tackling fraud, terrorist abuse and risks to vulnerable beneficiaries.”
Hodge warned that the commission’s failure to act against the Cup Trust was “disastrous” for the reputation of the commission and for the charity sector in general. She also raised concern that the Cup Trust scandal may “just be the tip of the iceberg”. HMRC investigates 300 incidents of fraud relating to charities every year.
Source: Guardian News