The charity tribunal has rejected an appeal by the corporate trustee of the Cup Trust against the Charity Commission’s decision to open a statutory inquiry and appoint an interim manager to manage the charity.
In a ruling published today, the tribunal dismissed claims made by Mountstar PTC that the commission acted unreasonably and said there was an "overwhelming public interest" in the Charity Commission continuing its inquiry into the Cup Trust, a charitable tax-avoidance vehicle that raised £176.5m in private donations but spent only £55,000 on good causes over two years.
But the tribunal also criticised the commission for not examining whether the Cup Trust trustee should have participated in the tax-avoidance scheme and saying that it was for HMRC to decide.
The tribunal’s statement said: "While the tribunal agreed that it is not within the remit of the commission to adjudicate upon the tax efficiency of the scheme, it found that it is within the commission’s remit and is its duty as regulator of charities to inquire into and determine whether a charity trustee in adopting a fundraising scheme such as the scheme has acted as an ordinary prudent man of business.
"This requires a rigorous and vigorous investigation by the commission into the scheme and its participants within the context of the Gift Aid legislation. That the commission had not done."
In a statement issued with the judgment, the tribunal said it found that "there is an overwhelming public interest in having a full and open statutory inquiry, with continued appointment of the interim manager, which should include addressing the questions of whether Mountstar had properly discharged its duties as charity trustee".
The commission opened a statutory inquiry into the Cup Trust on 12 April this year and appointed an interim manager two weeks later, after receiving information from HM Revenue & Customs about the charity.
In its statement, the tribunal said that Mountstar, acting as sole trustee of the Cup Trust, adopted a fundraising scheme in 2010 to generate more than £176m in donations from higher-rate taxpayers. This allowed the charity to claim £46m in Gift Aid from HMRC and the donors to claim £55m in higher-rate tax relief, the statement said. If the Gift Aid claims are unsuccessful, the Cup Trust will receive only £155,000.
In its statement, the tribunal said Mountstar had mismanaged the affairs of the charity to an extent that warranted the continued appointment of an interim manager, pending the outcome of the statutory inquiry, "as Mountstar, particularly with its present composition of directors, was incapable of properly discharging its duties as charity trustee to the charity".
The tribunal said the commission’s inquiry should also include a "full investigation into any conflicts of interest between the various participants in the scheme", with particular focus on Matthew Jenner, principal director of Mountstar, and those associated with him.
The commission’s inquiry, however, should not be confined to the scheme but should also look into whether the charity was established for public benefit or predominantly to serve the private interests of Jenner, the donor clients and others, the statement said.
A spokeswoman for the commission said in a statement that the regulator welcomed the tribunal’s decision and accepted criticisms of its conduct.
"We carried out a robust investigation of this case, and our strategy, in waiting for the HRMC’s determination of the charity’s Gift Aid claims, was at all times in line with our risk framework and published policies, which make clear that we do not engage where another regulator is already substantially addressing a matter of concern in a charity which is properly for them," she said.
"We accept that the approach of awaiting action by HMRC, in the tribunal’s judgment, was mistaken and that we should have gone further in considering the detail of the scheme and the conflicts inherent in relationships involved more closely."
She said the commission would consider the implications the judgment had for its regulatory work, looking particularly at how it was resourced to carry out such investigations.
The commission’s inquiry into the charity is continuing and the Gift Aid and higher-rate tax relief claims made as part of the tax-avoidance scheme are subject to scrutiny by HMRC.
Third Sector was unable to contact anyone at Mountstar or the Cup Trust for comment.