Mountstar director Matthew Jenner put the interests of the Cup Trust donors ahead of the interests of the charity and that was why an interim manager needed to be appointed to it, the Charity Commission told the Charity Tribunal last week.

Summing up the Commission’s defence on Friday, counsel Ben Jaffey said that Jenner, as a former partner in the tax advice firm HNW Tax Advise Partners (TAP), had already received fees of around £684,000 from advising donors to the scheme.
This was an obvious conflict of interest, he said.

Mountstar is the sole corporate trustee of the Cup Trust, the charity that is embroiled in a tax avoidance scheme that seeks to net around £55m for its donors in higher-rate tax relief, and £46m in gift aid for the charity.

Mountstar was in the Charity Tribunal challenging the Charity Commission’s decision to open a statutory inquiry into the charity and appoint an interim manager.

Jaffey said Jenner had already benefited financially from the scheme and there remained a very real risk that he or his family would benefit in the future.  “Mr Jenner said that he was not motivated by money but the Commission does not accept that,” he said.

He also told the Tribunal that HNW TAP had agreed to cover the costs, on behalf of the taxpayers, of defending any legal challenge by HMRC to the qualifying status of the donations, up to the First-Tier Tax Tribunal.

He added that if HMRC was to dispute the tax status of the Cup Trust, HNW had said it would act on the charity’s behalf at no cost, but had not made any such commitment with regard to any potential challenge to the gift aid claims.

This showed, he said, that Jenner put the interests of the donors ahead of the interests of the charity.

Cup Trust ‘played second fiddle to donors’

Jaffey said that if the Tribunal was to look at how financial benefits have been allocated between the charity, the advisers, the middlemen and the taxpayers, it is “obvious who got the spoils”.

“The benefit is overwhelmingly in the interests of the advisers and the taxpayers,” he said. “The charity played second fiddle and Jenner did not even attempt to negotiate to improve its position.”

More than 825 transactions took place in the scheme, though some of these may have been from the same donors.

However, the Charity Commission suspects that “four or five hundred donors” are involved.

Jaffey said: “We don’t say a charity should never get involved in a tax scheme but the Charity Commission position is if a charity is going to get involved, it has to give very careful consideration and thought to the long-term consequences and whether it is right for the charity.” No such consideration was given in this case, he contended.

BWB letter ‘misleading’

He said that a letter from Jenner’s solicitors, Bates Wells Braithwaite (BWB), sent to the Charity Commission during its first investigation into the charity, gave a “misleading” account of the situation.

BWB sought to assure the Commission that two of the Mountstar directors, Anthony Mehigan and Darren Stones, would not benefit financially, and said that Jenner had previously received payments but would not do so in future.

“The point of the letter was to persuade the Commission that everything was fine and Mr Jenner was not earning any profits now that he had been reappointed as a director of Mountstar,” said Jaffey. “With that, the Commission pulled up the drawbridge and closed its non-statutory investigation.”
But the letter from BWB omitted to mention that ownership of the tax advice partnership had passed to Jenner’s family trust.
“Mr Jenner cannot be relied upon to give a full and frank disclosure of the relevant facts,” Jaffey said. “I don’t go so far as to say he is a liar, but if you don’t ask exactly the right questions he is not going to tell you.

“I’m not suggesting any overt dishonesty in his witness statement, it is just economic – it presents overall a misleading picture.”

Jenner ‘not technically a charity trustee’

Matthew Smith, representing Mountstar, argued that Jenner was not technically a trustee of the charity so was not subject to the same responsibilities as a charity trustee. But Tribunal chair, Judge Nigel Gerald, said that was “semantics”.

However, he also pressed Jaffey hard on why the Commission appointed the interim manager when it did, instead of waiting until after it had met with the three Mountstar directors, as they had offered, or until after 10 May, the deadline that HMRC had given for provision of the information it had requested.

“There was no risk of documents being destroyed or of assets being moved offshore,” said the Judge, “so why the urgency? Effectively the charity was dormant.”

Jaffey said the Commission was already highly suspicious about the charity because of the apparent unmanaged conflicts of interest, and the revelation that it had also been “giving HMRC the runaround” was the final straw that prompted it to take action.

“There was a necessity for a proper and prompt investigation of what was going on,” Jaffey said. “It was not just because they were not cooperating with the Revenue, it was the context. The reason why the Revenue was being given the runaround was because the directors of this charity have other loyalties.

But Matthew Smith said there was no suggestion in any of the Commission’s evidence that any of the charity’s property or assets were at risk, and the failure to respond in time to HMRC, while “regrettable”, did not constitute serious mismanagement.

He accepted that the information requested by HMRC was not provided on time, but the Mountstar directors had been under a lot of pressure from media inquiries and the Charity Commission in the weeks beforehand.  

Smith also addressed the issue of five blank cheques signed by Jenner and fellow Mountstar director Stones, which were found in the safe by the interim manager. He said he didn’t seek to “trivialise” it but Jenner’s explanation was that he trusted his fellow directors.

But Judge Gerald was not impressed. “The whole point of having two signatories is that the directors can exercise independent control to ensure that money goes to the right place,” he said. “His attitude towards this was quite worrying.”

Smith argued that Jenner was “honest about his incompetence” at least, which added to his credibility. He also contended that there were “dozens, no hundreds, of charities in the country where things like that happen”, to which the judge replied: “Well there shouldn’t be”.

The Tribunal reserved its judgment in the case.