ONE OF THE UK’s largest charities was acting as a front for a tax avoidance scheme which abused Gift Aid incentives in order to help donors avoid £46m in tax.
The Cup Trust, a registered charity, 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 its stated cause of “improving the lives of young children and adults”.
Instead, the tax scheme carried out transactions which artificially generated Gift Aid for donors, allowing them to drive down their tax bills, The Times reports. For example, someone donating £1m to the Cup Trust could expect to recoup most of their money and still be entitled to between £250,000 and £375,000.
The Cup 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.
Last year, the chancellor attempted to introduce a £50,000 cap on charitable tax relief in an effort to curb schemes such as the Cup Trust’s, but an outcry from philanthropists and charities themselves saw the government row back on the move.
HM Revenue & Customs admits it is “well aware” that many tax avoidance schemes entail the abuse of Gift Aid, which was brought in in 1990 to allow charities to claim relief on donations.
“Dedicated teams are policing the rules by checking that charities and their donors comply,” an HMRC spokesman said.
The Cup Trust has been approached for comment.
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A total of £16bn was lost through tax fraud last year, according to estimates released by Pinsent Masons
Additional tax a result of compliance investigations by HMRC, but overall revenue falls