An international development charity closed after entering into a business rates mitigation scheme that eventually led to local authorities pursuing it for more than £800,000 in unpaid business rates, according to the findings of a Charity Commission statutory inquiry.
According to a report from the regulator, published today, the Africa Relief Trust, which was based in Lancashire and operated in South Sudan and Uganda, was approached by a company that ran a business rate mitigation scheme for landlords and which identified charities that could occupy empty commercial premises to provide business rates discounts for trustees.
The charities involved were typically charged small rents and had agreements to vacate the premises within 24 hours, meaning the property could be put up for sale or rent, the report says.
Charities receive 80 per cent mandatory relief from business rates if the building is used wholly or mainly for charitable purposes, with councils able to award a further 20 per cent discretionary relief for the sector.
To claim the relief, a charity cannot simply agree to occupy the property – it must actually use it for charitable purposes.
The Charity Commission report says that it opened a compliance case in 2011 after a local authority got in touch about a tenancy agreement the trust had entered into to occupy a large commercial property.
During the investigation into the Africa Relief Trust, the report says, the commission learnt that the charity’s application for business rates relief had been rejected and a £70,000 liability order had been granted by a magistrates’ court.
The commission launched a statutory inquiry once it had established the charity had entered into further lease agreements, amid concerns about the significant risk to the charity’s finances.
At the time of the inquiry’s launch, the charity issued a statement claiming it was legitimately claiming rate relief on empty properties that would be put to charitable use when they were next used.
The inquiry found that the decision to authorise the scheme was not properly taken by the charity’s chair, and the person who proposed the charity enter the business rates scheme became a trustee at the charity and managed the charity’s involvement.
The report says that the chair admitted in an interview with the commission that he did not understand how the scheme worked despite the charity having been involved in it for three years.
The regulator says in the report that the lease arrangements the charity had entered into exposed it to significant financial risk.
The charity’s accounts for the 2012/13 financial year showed an income of £52,115 and expenditure of £51,700. It received a £60,000 donation from the company involved in the business rates scheme and an anonymous source.
But local authorities were pursuing the charity for £800,000 in unpaid business rates and magistrates’ court liability orders meant the charity risked having to pay full business rates for the properties.
The trustees closed the charity in September 2015 and confirmed there were no tenancy agreements in its name.
The inquiry report concludes that there was mismanagement of the charity by the trustees and entering into the scheme was not in the charity’s best interests.
The report says the commission is considering using its powers to disqualify the charity’s trustees from future positions.