ONE OF THE UK’s largest charities was acting as a front for a tax avoidance scheme which abused Gift Aid incentives in order to help donors avoid £46m in tax.
The Cup Trust, a registered charity, raised around £176m over two years from 2010 – more than the Royal Society for the Protection of Birds, the British Heart Foundation and the Salvation Army – yet only £55,000 was put towards its stated cause of “improving the lives of young children and adults”.
For example, someone donating £1m to the Cup Trust could expect to recoup most of their money and still be entitled to between £250,000 and £375,000.The Cup Trust – which has not acted illegally – would purchase huge annual quantities of gilts, or government bonds. Those bonds were then reportedly sold on for a nominal sum through third parties to investors. The investors then sold them on at market value and donated the proceeds to the charity.
The head of Britain’s charity regulator will be hauled before MPs next month to explain how wealthy investors were able to use a charity scam to avoid £46 million in tax.
William Shawcross, the new head of the Charity Commission, will be questioned by the Public Accounts Committee about the Cup Trust, a charity exposed by The Times yesterday as a front for massive tax avoidance. MPs are also expected to ask him about other examples of charity rules being abused for tax purposes.
Tax avoidance is bending the rules of the tax system to gain a tax advantage that Parliament never intended.
In the 2012 Budget, the Government announced a range of additional measures to close tax loopholes, which will bring in around £1 billion in extra revenue and protect a further £10 billion over the next five years. The Government is also planning to introduce a General Anti-Abuse Rule (GAAR) aimed at deterring and tackling artificial and abusive tax avoidance schemes.
The Disclosure of Tax Avoidance Schemes (DOTAS) rules are a key part of our anti-avoidance strategy and oblige promoters and users of tax avoidance schemes to provide early information to HMRC.
More than 2,000 schemes were identified under DOTAS up to March 2012. This has resulted in more than 60 changes to the law, closing around £12.5 billion in avoidance opportunities.
Tax avoidance is not the same as tax planning. Tax planning involves using tax reliefs for the purpose for which they were intended. For example, claiming tax relief on capital investment, saving in a tax-exempt ISA or saving for retirement by making contributions to apension scheme are all legitimate forms of tax planning.
‘Spotlights’ warns you about certain tax avoidance schemes which HM Revenue & Customs (HMRC) thinks you should be aware of. These are just some of the schemes which HMRC believes are being widely offered to help those using them to avoid tax. HMRC is currently improving Spotlights to add more schemes.