The Charity Commission has asked the High Court for a ruling as part of an attempt to end a £46m claim for Gift Aid made by the charitable tax-avoidance vehicle the Cup Trust.
The charity became the subject of a commission inquiry in 2013 after it emerged that it had raised £176.5m in private donations over two years and attempted to claim £46m in Gift Aid, despite having spent just £55,000 on good causes. Donors might have been entitled to claim another £54m in tax relief.
The commission appointed an interim manager to run the charity to the exclusion of Mountstar PTC, a company based in the British Virgin Islands that is the Cup Trust’s sole trustee.
At a hearing in the High Court this week, the Charity Commission asked for a ruling that would direct the Cup Trust to discontinue the Gift Aid claim.
Ben Jaffey of Blackstone Chambers, appearing for the commission, said the prospects of the Gift Aid claim succeeding were negligible and the interim managers, Jonathan Burchfield and Ann Phillips of the law firm Stone King, did not think it was appropriate for the charity to be engaging in "entirely speculative litigation".
Mountstar has been taking legal steps to force HM Revenue & Customs to pay the Gift Aid.
Jaffey said the Cup Trust was part of a "fairly classic circular tax scheme" and millions of pounds of fees would be payable to advisers if the Gift Aid claim was successful.
He said fees of £3.5m would be payable to the family trust of Matthew Jenner, a former trustee of Mountstar who created the scheme, and a further £6.3m would be payable to the independent financial advisers Harry Associates, which introduced the taxpayers to the scheme.
The commission asked the High Court for a ruling because it felt this would be the best way to receive a definitive verdict and other routes would have been delayed by legal challenges from Mountstar.
Keith Gordon of Temple Tax Chambers, appearing for Mountstar, told the court that payment of the Gift Aid claim would bring substantial charitable benefits.
"The opportunity for the charity to gain in excess of £40m, with, I would say, negligible downside, must surely be in the interests of justice, given that those charitable funds, if received by the charity, will be able to be put to good use," he said.
"On that single argument alone, the combination of the broad jurisdiction in subsection 6, which says that the court may do what is just, and the clear positive advantages to charity in the broadest sense, with the lack of material downside, must in my respectful submission mean that the case should be allowed to proceed."
The Charity Commission’s statutory inquiry into the charity continues.
Judgment in the case was reserved.