THE HEAD of the UK's charity regulator is to be summoned to appear before MPs next month to explain how a registered charity could be used as a front for a tax avoidance scheme.
The new head of the Charity Commission, William Shawcross, will be quizzed by the Public Accounts Committee over the Cup Trust, which raised around £176m over two years from 2010 – more than the Royal Society for the Protection of Birds, the British Heart Foundation and the Salvation Army – yet only £55,000 was put towards good causes.
Instead, it carried out transactions generating Gift Aid reliefs for donors, thereby minimising their tax bills. An investor could expect to recoup most of their money and still claim the Gift Aid.
The trust – which has not acted illegally – would purchase huge annual quantities of gilts, or government bonds. Those bonds were then reportedly sold on for a nominal sum through third parties to investors. The investors then sold them on at market value and donated the proceeds to the charity, giving the investor a big charity tax relief reclaim.
Following a two-year investigation, the commission gave the Cup Trust a clean bill of health, despite the fact its accounts showed its trustee was based in the British Virgin Islands and its founder was a firm called NT [No Tax] Advisors, The Times reports.
Committee chair and Labour MP Margaret Hodge (pictured) said Shawcross "had questions to answer about how such flagrant abuse was allowed to occur".
The commission itself said in a statement that it is "not comfortable" with the Cup Trust's set-up and "understands" that the allegations against the charity "has caused serious concern, not just among members of the public who give so generously to charities, but also among the many thousands of charities that demonstrate high standards of probity, ethics and governance and do so much to support vulnerable people in society".
I am not an accountant but I donate to charity and am a trustee. It is late and this had made me very angry so please tidy it up if you print it. Most of it is cut and pasted directly from HMRC's website.
This sounds like a school boy attempt to arbitrage the income tax and capital gains tax rates. The bad news for the story is gift aid does not apply if the benefit to the donor is too large so no income tax rebate.
A benefit is any item or service provided by the charity or a third party to the donor or a person connected with the donor and which is associated with the donation. Being able to buy a million pounds of gilts for £500 is quite some benefit in exchange for a promised donation. It sounds like it is easy to show this connection between benefit and donation if the same pattern was repeated hundreds of times!!
There are two limits that apply to the value of the benefits that a donor, or a person connected with the donor, may receive in return for making a donation.
The limits on the maximum benefit are worked out using the relevant value test and the aggregate value test. If the value of the benefits received exceeds either of these limits, the donation will not qualify for Gift Aid.
For many benefits the value is simply the retail value of the item or service. For example if a donor receives a free theatre ticket, the value of the benefit is the face value of the ticket. Where a retail value can't be found, your charity or CASC must work out how much someone would be prepared to pay for the item or services - looking at similar commercial transactions will help. Sorry cannot use their own 500 quid for a million dodgy transaction as "commercial".
Sadly it looks like the mugs who took up this scheme will be liable for the CGT but not eligible for any income tax relief - TOUGH!
If any gift aid had been approved HMRC can go and claw it back and if it can be shown the benefit was hidden then I think they can go back further than the normal seven years. YAY! one for the good guys.
Posted by: Annoyed, 03 Feb 2013 | 02:48
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