Don Bawtree: The Cup Trust case demonstrates the shift in how charities are regulated

Also: Sorp reform; a review of Scottish charity law; and guidance on VAT and sponsorship

Don Bawtree
Don Bawtree

The Charity Commission has at last released its report on the financial affairs of the Cup Trust, the charity that shot to fame on the basis of its multimillion-pound income, with the main benefit appearing to be tax relief for donors. The regulator commented that even if the charity itself did not lose money, the effect of the scheme was to damage "public trust and confidence in both the charity, necessitating its closure, and in charities more widely. The effect of this matter has been to undermine public confidence in the lawful and fair operation of Gift Aid and to give the impression that a charity can be used as a vehicle for aggressive tax avoidance."

This is a salutary reminder, first, of the need for charities to follow tax law scrupulously, but also the increasing emphasis the Charity Commission puts on trustees acting not just in the best interests of their charity, but of the sector generally. It is of course arguable if this duty has any basis in law.


The Statement of Recommended Practice-setters have continued to add to the saga of how to account for profits passed up to a charity by a subsidiary company. In an information sheet issued in January, they say in essence that if you want to make it easy, get a deed of covenant in place. Too late for charities with December year-ends, perhaps, but others will be able to deal with this and hopefully put the matter to bed once and for all. There are, of course, always exceptions and individual circumstances, so there is probably no choice but to actually read the information sheet to check your own situation.


Many healthcare charities will be drawing up their budgets around now. An unwelcome piece of news is the government’s plans to increase employers’ pension contributions from 14.3 per cent to 20.6 per cent for NHS pension schemes and associated schemes in England and Wales. NHS trusts will get additional funding to cover this, but charities operating in the same sector will need to find the cash themselves.

VAT and sponsorship

HM Revenue & Customs has released updated guidance for charities on VAT and sponsorship. Most of the revisions are clarifications, but there is a brand-new section on crowdfunding, which is described as "the process of raising funds or capital for a specific project through the internet on a specifically designed platform". The VAT treatment will depend on whether the funder gets anything in return, whether interest or some other goods or services. It will then be a matter of assessing the significance and real value of those items, and working out the split if there is a combination of returns.

OSCR’s review

The Office of the Scottish Charity Regulator has announced a review of charity law. Some of the proposals bear on the financial aspects. First, the OSCR proposes to publish all charity accounts in full, rather than reacted versions of just the largest ones. The OSCR then wants the power to remove the small number of charities that persistently fail to submit annual accounts. Finally, cross-border charities are already required to talk about their activities in Scotland in their annual reports. In an apparent extension of this principle, the regulator now proposes that a connection to Scotland should be part of the requirements for being a Scottish-registered charity.

Accounts scrutiny

When you file a set of accounts with a charity regulator, that is no guarantee that they are acceptable – most sets of accounts are never looked at. However, that is not to say that none of them are. The Charity Commission has recently stated that in the first six months of last year it looked at 494 sets of accounts, compared with 534 in the whole of the previous year. This might be following on from an enquiry, or as part of some sort of thematic review. So over a ten-year period there is about a one-in-10 chance of an average charity having its accounts looked at by the regulator.

Don Bawtree is lead partner for charities at accountants BDO LLP

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