Yahoo Finance Charity Watchdog Slammed Over 'Tax Scam'
The charity regulator in England and Wales is under pressure over its failure to prevent a trust operating as a charity for tax avoidance purposes.
A report by MPs said the Charity Commission should never have granted legal charitable status to one trust which raised £176m in two years but paid out just £55,000 in donations.
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 (PAC) 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 PAC it was aware of eight other schemes relating to charities and investigates around 300 similar schemes a year.
The PAC 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.
"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.
"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."
Despite a two-year investigation, which started in March 2010, the PAC concluded that it could not de-register the Trust as it was "legally structured as a charity", despite not being for exclusively charitable purposes.
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.
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.
"The corporate trustee is challenging this use of powers in the Charity Tribunal.
"We regularly share information with HMRC and run joint operations where there are shared concerns about abuse of charity.
"Together we are discussing better ways to share information and work together to tackle abuse of charity - such as a joint application portal for registration. We have kept the committee informed of our progress."
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