Tax scandal threatens charity donations

Regulator stands accused of cowardice and bringing the whole sector into disrepute

The Charity Commission’s handling of a high-profile tax-avoidance scandal that saw shockingly little donated money reach good causes has put charities at risk of losing the public’s confidence – and consequently their money, one of the leading figures in the sector has warned.

Sir Stuart Etherington, chief executive of the National Council for Voluntary Organisations (NCVO), the UK’s largest charity association, said the regulator had brought charities into “disrepute” by failing to act over the controversy.

The Cup Trust was exposed in January as giving only £55,000 to good causes despite raising £176m over two years as part of a scheme in which donors were suspected of claiming millions in tax relief through an abuse of the Gift Aid scheme. But after a 24-month investigation, the Charity Commission, chaired by William Shawcross, allowed the Cup Trust to remain on the charity register.

Sir Stuart condemned the decision in a speech he gave at a conference in London. He said that “the complete lack of intervention by the commission in this whole affair has brought damage and disrepute to the sector as a whole, putting us at serious risk of losing the trust and confidence of the public”.

He continued: “What was so obvious in the Cup Trust case is how a legalistic approach dominated common sense, meaning that decisions were made following the letter of the law rather than the spirit, no matter what disastrous consequences this caused.

“It seems that, in the case of the Cup Trust, the commission was so concerned about what it couldn’t do that it didn’t do what it could do.”

In a sustained attack at the conference organised by the Association of Charitable Organisations, Sir Stuart further criticised the performance of senior Charity Commission representatives in front of the Public Accounts Committee in March.

He argued it had “raised serious concerns about the regulator’s handling of the case, and more generally about its operation”.

The NCVO head said that, as a result, the commission’s credibility as an effective regulator had been seriously undermined – speaking of “accusations that it is a paper tiger – not so much a light-touch regulator as a no-touch regulator”.

He added that the commission had some fundamental questions to answer over its leadership and “lack of direction” and “disappointing lack of bravery”.

The regulator last night denied claims it had failed to act, saying that it had launched a formal inquiry into the Cup Trust in April after receiving new information from HM Revenue & Customs (HMRC).

An interim manager was also appointed by the commission to take control of the charity.

Michelle Russell, head of investigations and enforcement at the Charity Commission, said: “We have had ongoing concerns about the charity’s involvement in the Gift Aid scheme and the potential for damage to public trust and confidence.

“While we took no regulatory action pending HMRC’s determination of the charity’s Gift Aid claims, we have continued to look at the trustee’s handling of its responsibilities and duties. 

“We always made it clear that if new information came to light, we might open a further investigation. In the light of our ongoing concerns, when we received new information from HMRC, we took immediate steps to open a statutory inquiry.”

In response, the Cup Trust has made a formal appeal to the Charity Tribunal against the commission’s inquiry.

The buck stops here: William Shawcross

William Shawcross, who took over as Charity Commission chairman in October, has a background in aid work and human rights. From 1997 to 2002, he was on the council of the Disasters Emergency Committee. Educated at Eton and Oxford, he studied sculpture at St Martin’s College of Art. After university in 1968, he went to Czechoslovakia and saw the country’s uprising against Soviet rule. He reported on the Vietnam War and has written 12 books on international conflicts.

Sanchez Manning

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