Regulator 'too passive' in approach to Cup Trust, says report

National Audit Office findings on the tax-avoidance scheme say that the Charity Commission was slow to recognise how serious the case was

Offices of Mountstar, sole trustee of the Cup Trust
Offices of Mountstar, sole trustee of the Cup Trust

The Charity Commission did not publish a report after its first investigation into the Cup Trust, the charitable tax-avoidance scheme, because it felt there was not "significant public interest", according to a National Audit Office report.

The report into the commission’s handling of the Cup Trust case, published today alongside a report from the NAO on the regulator’s wider work, says the commission was "too passive" in its approach to the Cup Trust case, that its initial investigation took far too long and that it was too slow to recognise the seriousness of the case.

The Cup Trust was set up as a tax-avoidance scheme and was run by Mountstar PTC, based in the British Virgin Islands.

Wealthy individuals made donations to the trust worth £176m over two years, but then bought government bonds from it at a fraction of their value. The trust claims it is eligible for £46m of Gift Aid and its donors could put in claims for another £44m, but the trust made donations of only £55,000 in those two years.

"The commission did not make enough checks when it registered the trust in 2009 to ensure the organisation met the legal requirements to register as a charity," the NAO report says. "The commission was reluctant to take strong action during initial investigation and did not open a statutory inquiry in 2011."

It also says that the commission did not give enough weight to the reputational damage that might be done by the Cup Trust.

"The commission took too narrow a view of its remit, seeing the scheme as something for HM Revenue & Customs to deal with rather than seeing the bigger picture," the report says. "It did not fully appreciate the scale and nature of the Gift Aid scheme nor the potentially detrimental impact of the case on public confidence in charities."

It says that the commission did not properly appreciate the level of public interest in the case.

"When it closed its investigation in March 2012, the commission decided not to publish its findings," the report says. "This was on the grounds that the case was not of significant public interest and that public confidence in charities would not be enhanced by wider discussion of the issues."

The NAO report says seven other charitable tax-avoidance schemes are under investigation, but none involves a charity registered in England or Wales.

A commission spokeswoman said the regulator noted the report’s acknowledgement that in making registration decisions it could, as a general rule, take into account only the expressed purposes of an organisation, not its activities or the motives of its founders.

"We carried out an investigation into the Cup Trust in line with our risk framework, available resources and published policies at the time which made clear that we do not engage where another regulator is already substantially addressing a matter of concern in a charity," she said.

"We have already acknowledged that our approach to tackling mismanagement has, at times, been overly cautious and that we must strengthen our work in this area. We have already begun to make significant changes."

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