MPs slam watchdog over tax dodging ‘charity’

The Charity Commission’s failure to stop UK-registered charity the Cup Trust abusing the law to avoid tax is “unacceptable” and could have been easily avoided through carrying out elementary checks, the Commons Public Accounts Committee said.

The charity, which has trustees in the British Virgin Islands (BVI) tax haven, also claimed Gift Aid of £46m, but has not been paid the money.

Committee chairwoman Margaret Hodge MP said the Trust never met the legal criteria to qualify as a registered charity.

The report said that “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”.

The MPs warned that the Trust could be “the tip of an iceberg” as HM Revenue & Customs (HMRC) told the Committee it was aware of eight other schemes relating to charities and investigates around 300 similar schemes a year.

The Committee will now carry out an investigation into whether the watchdog is fit for purpose.

The MPs said it was “unacceptable” that the Trust was registered as a charity in April 2009 with a BVI-based company called Mountstar as its only trustee.

The company’s directors were well-known to HMRC for being involved in tax avoidance, the MPs said.

The watchdog’s failure to put a stop to the Trust’s abuse of its charitable status was also described as unacceptable.

“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,” the report said.

It added: “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.”

Despite a two-year investigation, which started in March 2010, the Commission concluded that it could not de-register the Trust as it was “legally structured as a charity”. It has still not published the results of the investigation and has not put forward proposals to stop such abuse.

Ms Hodge 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’, £176m, the Trust has only ever given the paltry sum of £55,000 to charitable causes – 3p for every £100 it received in donations.

A Charity Commission spokesman said: “Since the committee took evidence in March, we have opened a statutory inquiry into the Cup Trust, and have used our powers to appoint an interim manager to take control of the charity and its affairs.”