Charities regulator not tackling tax avoidance risks, say auditors

3 Dec 13
The charities watchdog in England and Wales has failed to do enough to identify and tackle abuses of charitable status that could be used to avoid tax, the National Audit Office has warned today.

By Richard Johnstone | 4 December 2013

The charities watchdog in England and Wales has failed to do enough to identify and tackle abuses of charitable status that could be used to avoid tax, the National Audit Office has warned today.

In a report examining the work of the Charity Commission, the NAO said it had not provided effective regulation of the sector by failing to assess the risks of charitable status being misused. Abuses can include qualification for the Gift Aid tax exemptions and reliefs.

When concerns about charities abusing their status were identified, auditors found the commission had made little use of its powers and had not taken tough action in some of the most serious cases. In certain instances, concerns about abuse of charitable status were not investigated for several months.

In total, only two trustees of charities had been suspended in 2012/13, and none had been fully removed, The regulatory effectiveness of the Charity Commission report concluded. Since then, seven new board members have been appointed to the commission.

Auditor general Amyas Morse said there was evidence the commission had been ‘too passive’ in its regulation to effectively protect the reputation of the sector.
‘We welcome the early plans for a reset of its approach and strategy being proposed by its new board, and encourage them not to fall short of the radical change of pace and rigour which is evidently needed.’

The examination of the commission came after the House of Commons’ Public Accounts Committee criticised the regulation of a charity – the Cup Trust – that MPs concluded had been set up as a tax avoidance scheme.
In a separate report on the trust, also published today, the NAO said the commission did not properly consider whether it met the key legal requirement of being within the jurisdiction of the High Court of England and Wales before registering it as a charity in 2009. The charity had a sole corporate trustee, a company called Mountstar, registered in the British Virgin Islands.

Following an inquiry in June this year, MPs concluded the trust had been established in a bid to avoid tax. It submitted claims for £46m of Gift Aid on £176m of payments from trust members, but gave just £152,292 to charitable causes between April 2009 and March 2013.

PAC chair Margaret Hodge said the NAO report indicated the Charity Commission was not fit for purpose.

‘People in this country are hugely generous in giving to charities but the failure of the Charity Commission to detect and tackle abuse effectively risks undermining public trust in the whole sector.’

Responding to the report, the commission accepted the need to improve.
‘We recognise our approach to tackling problems in charities has been too cautious at times, especially where there is a suspicion of deliberate abuse,’ a statement from the watchdog said.

Chief executive Sam Younger added: ‘I agree that we must sharpen our approach to handling the most serious cases that involve deliberate abuse or mismanagement of a charity. Such cases seriously undermine public trust in charities generally, and as regulator, we must identify and handle them effectively. We must also make better use of our own data to drive proactive work.’

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