Editorial: Why the Cup Trust affair is damaging to charities

It has associated the sector with tax avoidance and made the authorities look toothless, writes Stephen Cook

Stephen Cook, editor
Stephen Cook, editor

The revelation that the Cup Trust was little more than a vehicle to help the rich to avoid tax has dealt a significant blow to public trust and confidence in charities, and the silence of the authorities about the details hardly improves matters.

The trust borrowed money, bought government bonds and sold them at a nominal price to participants who then sold them at market price, 'donated' the proceeds to the trust and claimed Gift Aid on higher-rate tax. The trust then used the 'donations' to pay off the initial loans, also claimed Gift Aid and made nominal contributions to its charitable purposes. Very nifty - and very cynical.

After a two-year investigation, the Charity Commission concluded on legal advice that the trust was properly structured as a charity and there was nothing it could do about what Margaret Hodge MP has called " flagrant abuse". This has, understandably, revived accusations that it is a paper tiger and a "no-touch regulator" - see the comments at the foot of Third Sector online stories about the affair.

So what about HM Revenue & Customs? It issued what it called a "spotlight" bulletin in 2010 that said it would not approve "circular" Gift Aid mechanisms, but because of its duty of confidentiality about people's tax affairs finds itself unable to say whether or not Gift Aid payments were made under the Cup Trust scheme in any given year. The Cup Trust accounts for the year to March 2012 show its income dwindling to nearly nothing, which suggests that the scheme is no longer operating. But whether that is the case, and why, and whether Gift Aid was ever paid, and how much, remains a matter of speculation. The trust itself, of course, does not answer the phone and give an account of itself.

In the absence of proper information about what has actually happened, the watchdog looks toothless, the revenue service looks secretive and the reputation of charity is tarnished in the eyes of the public. Does the commission need stronger powers? The question is bound to come up when the Law Commission starts reviewing charity law in a few months' time.

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