Bashing the Charity Commission won't prevent other Cup Trusts

The lawyer Ted Powell asks whether the fingers of blame are pointing in the right direction

Ted Powell
Ted Powell

If you thought blood sports had been outlawed in this country, think again. Recent days have seen the revival of that time-honoured British pastime: bashing the scapegoat. The Charity Commission cowers defenceless as blows rain down from all sides – the press, the Public Accounts Committee and the grandees of the charity sector. Finally, in an attempt to appease its tormentors, the commission has announced a statutory inquiry into the Cup Trust and has appointed an interim manager to run it.

But are the fingers of blame pointing in the right direction? Significantly, the commission's press release confirmed that the inquiry had been opened "immediately following the receipt of new information from HMRC". Lest we be concerned about taxpayer confidentiality, we are reassured that "the information was supplied in the course of our regular contact with HMRC about charities giving us cause for concern and under specific legal provision which permits the sharing of information in such circumstances". The Cup Trust was, after all, a tax avoidance vehicle, and tax is the province of HM Revenue & Customs, not the Charity Commission. So far the commission has taken the rap, but isn't HMRC as much to blame?

If the Charity Commission and HMRC were a comedy duo (and I only say if) they would have to be Laurel and Hardy. The commission is Stan Laurel – timid, weedy and apologetic – while HMRC is Ollie Hardy – an overbearing figure bullying his feeble partner. And Hardy's catchphrase after creating a mess was, of course: "this is another fine mess you've gotten me into!" 

Joking apart, we may doubt whether the public humiliation of the Charity Commission will do anything to prevent other Cup Trusts arising in the future. As long as there are convoluted tax rules and complicated reliefs available in the UK, taxpayers will look to exploit loopholes. However, the recent public furore over tax avoidance by large corporations and rich celebrities perhaps reflects a sea change in public opinion. 

Aggressive tax avoidance by the wealthy, especially under the guise of charitable activity, is now viewed as socially unacceptable, rather than just part of the game of outwitting HMRC. The Charity Commission has been caught in the firing line, but the real culprit is Britain's absurdly complicated tax system, which positively invites avoidance. The only effective way to reduce tax avoidance is for the government to take a long, hard look at the current system, to simplify and streamline, and perhaps to make charity reliefs more generous. That way, genuine charities will benefit and the incentive to set up bogus charities will fade.

In truth, HMRC is fighting a winning battle against tax avoidance. It is now much harder than it was 20 years ago to circumvent the tax system and avoid tax. This is the result of a concentrated focus on anti-avoidance and new approaches such as the introduction of the DOTAS (Disclosure of Tax Avoidance Schemes) regime. In the case of the Cup Trust, it is not even clear that there has been any tax loss to the Treasury. Certainly, we know that HMRC blocked the trust's enormous Gift Aid claim, and it is likely that HMRC will have followed up against individuals who might have claimed higher rate relief on their "donations" to the Cup Trust. The system seems to have worked in preventing avoidance. Whisper it quietly, but is this all a fuss about nothing?

Ted Powell is a partner at the national law firm Mills & Reeve, and specialises in charity law, VAT and tax

- See our Big Issue on the Cup Trust

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