The Charity Commission missed “red flags” when the Cup Trust applied for charity status and should never have registered it as a charity, the Public Accounts Committee (PAC) has concluded.

Publishing its report into the gift aid tax avoidance scandal today, the PAC's chair Margaret Hodge MP (pictured) warned that the Cup Trust could be just the “tip of an iceberg” and reiterated that she is concerned about whether the Commission is “fit for purpose”.

Hodge said: “My committee does not believe the Cup Trust ever met the legal criteria to qualify as a registered charity. Its purpose was to avoid UK tax.”  The report suggests that if the Commission concludes the Cup Trust is legally a charity it should “identify ways the law should be changed”.

She said that the fact that HMRC says it investigates 300 cases involving charities and fraud each year and that it has been notified about eight potential tax-avoidance schemes relating to charity “strongly suggests that the Cup Trust case is just the tip of an iceberg”. The committee calls for the Commission to check that it has investigated all the cases identified by HMRC and publish a review.

The Charity Commission was also criticised for not implementing the committee’s previous recommendations to make wider use of its regulatory powers. Hodge added: “The Charity Commission’s approach to regulation and enforcement lacks rigour. It has carried out few enforcement visits, rarely mounts prosecutions and removes very few trustees.

“It appears that the Commission has simply failed to seriously consider and implement our previous recommendations. We will now undertake yet another thorough investigation of the Charity Commission and whether it is fit for purpose.”

The National Audit Office report into the Charity Commission, focusing on its fitness to regulate, is due to be published this autumn.

After the PAC hearing the Charity Commission opened a statutory inquiry into the Cup Trust and appointed an interim manager. The corporate trustee is challenging this in the Charity Tribunal. Once it has completed its inquiry the Commission intends to publish a report.

Response from the Commission

The Commission issued a statement in response to today’s report, saying: “We regularly share information with HMRC and run joint operations where there are shared concerns about abuse of charity. Together we are discussing better ways to share information and work together to tackle abuse of charity – such as a joint application portal for registration.”

It added: “We are targeting our resources on the areas of highest risk, with a particular emphasis on tackling fraud, terrorist abuse and risks to vulnerable beneficiaries.”

Last month additional evidence to the PAC disclosed by the Commission revealed that the regulator spends 17 per cent of its total workforce time dealing with non-compliance issues and that its records show that there are 6,569 charities with a corporate trustee. Some 195 charities have one or more trustee with private addresses in Jersey or Guernsey, two have addresses in the British Virgin Islands and 27 have a trustee in Bermuda.

HMRC revealed in supplementary evidence to the PAC that it could not determine how many charities had trustees based in tax havens but hopes that it will be able to do so once it has moved all its records to a new IT system.

The Commission's chairman and chief executive, William Shawcross and Sam Younger, appeared before the PAC in March following a report in the Times that revealed that the Cup Trust had only given £55,000 to charity despite having an income of £176m and was structured in a way to enable both the charity and its donors to claim gift aid. HMRC told the PAC it has not paid any gift aid claims to schemes of this nature and the Cup Trust’s accounts show that no gift aid has been paid.

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