The Charity Commission has said there was “clear misconduct and mismanagement” at The Cup Trust, a charity at the centre of a tax avoidance scheme which earned its founder £2m in fees.
The Cup Trust was a charity used as a large-scale tax avoidance scheme. It received more than £176m between March 2009 and March 2011, spent that money on buying government bonds and then sold those bonds for less than £17,000. The charity donated only £55,000 to good causes but put in claims for £46m of Gift Aid, which were not successful.
Today’s statutory inquiry report says that between January 2010 and November 2010, there were ten rounds of the scheme involving over 360 donors making approximately 826 transactions.
The Cup Trust was governed by a sole corporate trustee, Mountstar. The Commission’s inquiry concluded that the charity was effectively controlled by Matthew Jenner, a director of Mountstar.
Its unconventional arrangements were exposed by the Times in 2013 and the Charity Commission’s handling of the case was criticised MPs.
The events were partially responsible for the Commission being granted new powers in the Charities Act 2016.
In 2017 the Commission used some of these powers to disqualify the corporate trustee and remove the charity from the register.
People connected to the scheme made millions in upfront fees
“Whilst Mountstar did not profit from the participation in the Scheme itself, one of the directors of Mountstar, the person which founded the charity and promoted the scheme, Mr Jenner, profited from at least £2m in fees and/or commission. He and others would have profited further, and the charity been liable to pay substantive fees, had the gift aid claims and the scheme succeeded,” today’s inquiry report said.
The Commission’s report details the fees earned by those involved in running the scheme.
It said that key parties had built up over £2m in fees by participating in the scheme and that Matthew Jenner “received in excess of £2m in up-front fees from his taxpayer clients for his work on the scheme”.
Jenner received this money via HNWTAP, a company involved in the scheme, in return for introductory commissions and upfront tax advice fees.
Another individual, Mr Clark, received £328,423 from fees and commissions.
‘Undermined public trust in charity generally’
The Commission said that this case had undermined wider public trust in charities.
Harvey Grenville, head of investigations at the Commission, said: “Our inquiry demonstrates beyond doubt that The Cup Trust was misused by the corporate trustee to assist higher-rate tax payers in reducing their tax bills, and earning individuals connected to the scheme lucrative fees. Those personal benefits were far more than incidental and the fact that the charity would, had the scheme been accepted by HMRC, have benefited from Gift Aid, does not legitimise these intentions or actions.
“Charities rely on the public’s goodwill in supporting tax benefits designed to encourage genuine charitable donations. It is right that we take robust regulatory action where trustees’ actions abuse that goodwill.
“It is clear that this charity, through its involvement in an attempted tax avoidance scheme, undermined public trust in charity generally.
Grenville also said that the regulator has since improved its processes for dealing with risks and making sure charities comply with their responsibilities.
“The Commission has learnt from this case: over recent years, we have significantly strengthened our approach to identifying and dealing with risks facing charities, have improved our pre- and post-registration processes and are more proactive and robust in using our legal powers to ensure trustees comply with their legal duties and responsibilities.”
The inquiry report said the Commission had investigated The Cup Trust in 2010 over concerns about its structure and concluded that it was properly constituted as a charity, based on its purposes.
But the investigation was also “concerned about the apparent lack of charitable activity” and decided to wait until HMRC had decided whether or not to play the Gift Aid claimed.
It closed the investigation in 2012, “pending the outcome of whether or not the gift aid scheme was recognised as legitimate by HMRC”.
The Commission opened a statutory inquiry into The Cup Trust in April 2013 after it received information from HMRC which raised concerns about conflicts of interest and about the corporate trustee not providing evidence to HMRC.
It immediately appointed Jonathan Burchfield of Stone King LLP as the interim manager and made an order banning the charity from selling its property. A second interim manager was later appointed.
The Commission found “persistent non-co-operation by the Charity with HMRC” which had led to HMRC issuing penalty notices totalling £3,420.
The inquiry concluded that conflicts of interest were not properly managed.
“The Commission’s view is that there were clear conflicts of interest that arose or which were likely to arise because of the number and nature of the associations and relationships between one or more directors of the trustee, Mountstar and the tax advisors, partnerships and other organisations which were instrumentally involved in one way or another in the Gift Aid scheme,” the report said.
Interim managers identified additional issues “including discovery of a number of blank, but signed, cheques”.
The inquiry report said decision making at the charity was “poor” and that it had “failed to take independent professional advice”
Length of inquiry
It has taken five years to conclude the inquiry because it was such a complicated case.
“The Inquiry had to be put on hold and was prolonged due to various legal proceedings that had to take place,” the Commission said.
This included appeals to tribunals and a High Court hearing.
It added that most of its work had finished by the end of 2017 but that: “The publication of the final report has been delayed due to the diversion of Commission resource to deal with safeguarding matters in 2018.”