As the issue of tax avoidance rumbles on, charities are under investigation – including the charities watchdog. HMRC has already reported it has recovered £20m in unpaid taxes and has announced it knew of a further nine charities that are under investigation.
Grabbing the headlines at the moment is the offshore charity The Cup Trust. The charity was investigated last year and was found not to be committing any tax fraud, but it is being investigated yet again as it is controlled by a single corporate trustee said to based in the tax haven of the British Virgin Islands.
However, it has been discovered that the charity does not have any employees and that the named trustees all live in London. Furthermore, the charity been scrutinized for paying £55,000 in donations despite an income of £176m. What´s more the trustees are trying to claim back £46m from HMRC under the Gift Aid system.
The charity was only founded in 2009, but it´s rapid growth has seen it climb to the 14th largest charity in the UK. However, the figures are misleading. The charity is believed to have bought government bonds and sold them to wealthy “donors” for £17,000 – a figure well below their true value. The “donors” then sold the bonds back to the charity for the original bond price and made a tidy profit.
Although details of the investigation has not been released, the sale of government bonds coincide with the bank of England´s Quantitative Easing program which made savers and pensioners poorer whilst lining the pockets of the wealthiest 10 per cent of UK families. Something definitely smells off.
In response to the impending scandal, MP´s have lambasted the charities watchdog and is questioning whether their role is fit for purpose. The pointing fingers are accusing the governing body of allowing the abuse of the Gift Aid system to cheat the British public out of tax money that could be put to effective use.
Proposed cap on charities
The scandal may prompt for a cap on the amount donors can give to charity. Many wealthy families have been found cheating HMRC rules by using breaks in donations to charities to avoid paying tax.
Plans to introduce a tax cap on charitable giving were scrapped last year after the government buckled under pressure from charities and their donors. Perhaps coincidentally (perhaps not), the debate was rumbling whilst The Cup Trust charity was under investigation by the Charity Commission and HMRC. However, when the charity was cleared of any misdoing, plans to introduce a limit for donations was dropped.
The mounting exposure on The Cup Trust is certain to spark the debate again, and if names of wealthy donors are caught up in the corruption, the government will have little choice other than to enforce tighter regulations on tax avoidance through charitable donations. Perhaps charities should brace themselves!