Richard Murphy has drawn my attention to the use of charity as a tax avoidance mechanism. The case he has discussed is that of the Cup Trust.
I had not heard of this charity. It's online statement is typically uninformative: it says
QUOTE
We are a UK based charity that seeks to raise funds to enable us to make grants to other UK based registered charities.
We are registered, as a charity, and are governed by the UK Charity Commission. Our register number is 1129044.
The Charity Commission regulates the administration and affairs of all registered charities.
Whilst we can provide grants to any UK registered charity our current focus is on raising funds so we can provide grants to charities that seek to benefit children and young adults.
That sounds ok, I suppose, so it is something of a suprise to find that they don't actually do very much of that at all.
Their accounts for the year ending 31/3/11 show that they had total income of £78,941,598. Of that £78,934,026 is described as "voluntary income".
It is then recorded that the costs of generating those funds was £78,918,422. That left £55,000 for charitable activity.
It is often complained that the admin costs of charities are too high, and that not enough goes to the ostensible purpose of the charity. But when you hear such complaints do you envisage it is at this level? I did not. It does not take a a highly trained bloodhound to smell that there is something wrong with this and that what is wrong with it is not administrative inefficiency.
So what is really happening?
The accounts show that the full cost of generating the income is attributed to the purchase of gilts. What appears to have happened is this:
The Cup Trust borrowed money from an offshore trust. It used that money to buy gilts. It sold those gilts to investors (who paid a fee to join the scheme) for a nominal sum. The investors then sold the gilts for full value, and donated the proceeds to the charity. The charity made a charitable donation of about £500 on behalf of each investor, thus establishing itself as a bona fide charity. The "donors" claimed tax relief on the charitable donation, and the charity used the donation to repay the loan which bought the gilts in the first place. From the donor's point of view, they paid the fee to join the scheme; and, say 1% of the face value of the assets. For that they avoided tax on 100% of the value of the assets, at 40% or 50%.
Gift Aid, the tax relief on charitable donations is a scheme aimed at encouraging charitable giving. It does not matter what you do, with the best of intentions, these people will exploit it. I have said before that I am opposed to this relief, and that was before I knew about this. You will remember that a plan to cap relief on charitable donations was scrapped in April by Mr Osborne after a huge outcry. I wonder if that would have been so widely supported if this particular case had been known. And one is such an unlikely number......
This trust was set up in 2009, and it has received £176 million in donations since then: the £55,000 given to charity is the total disbursed because it did not record any in its first year. So basically the treasury has lost the tax on that full some:and since most of the "donors" will be taxed at the higher rate it represents tax avoidance in the order of £80 million.
It is reported that the charity has no staff, and it has one trustee, a company called Mountstar (PTC) limited, based in the Virgin Islands. That company has three directors, Matthew Jenner, John Mehigan, and Darren George Stones. The first two of those have form because they were behind the tax avoidance scheme which brought the comedian Jimmy Carr into disrepute quite recently
Apparently this is perfectly legal, because the charities commission investigated the Cup Trust and found that it had no option but to register it as a charity, under prevailing legislation. The legitimacy of the tax relief is not so certain but many will no doubt argue it is legal and not therefore tax avoidance. Indeed there are already fulminations in the press about the failure of the regulator. You be the judge as to where the primary fault lies: the regulator has not done well, but can anyone really justify this behaviour? I think not, personally. I see no reason to suppose that it is reasonable to expect a regulator to spend all their time thinking about every possible action a bastard might take, and then looking into every institution to see if they have done any of them. It is perfectly clear that the intention of the law is to encourage people to donate money to good causes: enriching yourself and the directors of the charity does not qualify, IMO. Clearly those who engaged in this scheme believe charity begins and ends at home
http://www.mirror.co.uk/news/uk-news/jimmy...-is-tax-1566487
