HMRC does not believe it has paid any gift aid claims to either individuals or organisations operating what it describes as a “circular” scheme.

In March 2010 HMRC issued Spotlight 9: Gift aid with no real gift, outlining a scheme involving a complex series of "circular" payments, similar to the Cup Trust, and stating that it would not pay gift aid claims in such cases.

Lin Homer chief executive of HMRC, appeared before the Public Accounts Committee yesterday and told MPs: “We do not believe we have seen a scheme of this nature be successful that has led to gift aid being paid.”

Referring only to the scheme as Project 2010, she could not confirm if the Cup Trust was the scheme that caused HMRC to issue the spotlight but did say: “What I can say is that in publishing this spotlight, we were talking about a scheme that was being marketed.”

A change in policy means that HMRC is now naming schemes it mentions in its spotlight announcements.

Earlier in the meeting Hodge had revealed that the PAC had identified 50 charities operating in a similar way to the Cup Trust, Homer urged the MPs to share any information they have on tax avoidance schemes.

Homer said that HMRC makes 5,000 interventions per year in the area of charities – “many of those are standard – they’re about simply correcting errors” but that 300 involve fraud, and it has had 8 declarations under Dotas (disclosure of tax avoidance schemes).

Working with the Charity Commission

The Charity Commission started its investigation shortly after the publication of Spotlight 9 but could not confirm that it had been tipped off by HMRC, with Shawcross saying only that the Commission had been tipped-off by “public and private sources”.

William Shawcross, chairman of the Charity Commission told MPs that: “The lesson from this is that we must cooperate more with HMRC.”

HMRC and the Commission already have a Statutory Gateway agreement, meaning they share information.

Proportion of income dedicated spent on charitable causes

Shawcross told MPs that one of the key problems the Commission had was that the charity had given £55,000 to charities, event though it was a “tiny proportion” of what flowed through the charity.

The charities that have benefited from the Cup Trust are not listed, either in its accounts or on its website but Shawcross said the Commission’s investigation had established that “bonafide charities” had benefited.

Shawcross explained: “The trustees of a charity are entitled to decide how much of their resources they spend in any given year.”

PAC chairman, Margaret Hodge held up the example of Oxfam spending 3 per cent of its donations on admin costs and said: “That is where they should all be.”

She said she could not see why the Commission “is not seeking change to the legislation” to require a minimum amount of income goes

Shawcross pointed out that it was not mentioned in Lord Hodgson’s review last year, but that he would be happy to discuss it further.

Sam Younger, chief executive of the Commission added that: “The Commission really is about charitable status not a particular standard setter.”

BWB was named by Younger in yesterday’s hearing as the law firm representing the Cup Trust during its investigation, click here to read more.