The Charity Commission has been criticised by MPs over its failure to spot clear evidence that the Cup Trust charity was no more than a tax avoidance vehicle established by 'people known to be in the business of tax avoidance'.
An investigation by the Public Accounts Committee (PAC) found that the Cup Trust, which was set up as a charity in April 2009, generated income of £176m of which only £55,000 was given to charitable causes. It also made a gift aid claim of £46m.
In its report, the PAC attacked the Charity Commission's failure to make 'elementary checks' with HMRC which would have revealed the Cup Trust's directors were 'well known to HMRC and the financial services world as involved in the business of tax avoidance'. It said it was 'unacceptable that the Commission has not been able to put a stop to this abuse of charitable status'.
The PAC also criticised the Commission for failing to publish its own report on what went wrong, and for not bringing forward proposals to change the law to exclude organisations like the Cup Trust from the register.
The committee calls on the Commission to publish the evidence that led it to register the Cup Trust in the first instance and to allow it to remain registered. It wants the Commission to review its conclusion that the Trust meets the legal definition of a charity, and to identify ways the law should be changed to ensure that organisations like the Trust are not granted charitable status.
It also wants the Commission to review its procedures and says it should liaise with HMRC before registering any charities where there are 'red flags' that raise concerns about trustees or where charities are based in tax havens.
The PAC warned that the Cup Trust case may 'just be the tip of an iceberg' and said HMRC's evidence to its inquiry indicated it knew of around eight other schemes relating to charities, and investigates about 300 similar schemes a year.
The PAC report made reference to repeated 'severe shortcomings' in the Charity Commission's performance over the last 25 years, particularly in relation to investigation and enforcement.
In the last four years it has only removed one trustee, suspended four trustees or officers of charities, and only appointed interim managers of charities on five occasions.
The National Audit Office is conduct a review of the Charity Commission's approach to regulation, including the timeliness and effectiveness of enforcement action, its approach to tackling fraud in the sector, and its arrangements for sharing information with HMRC.
