The Charity Commission decided proceed with a full statutory inquiry into the alleged use of the Cup Trust as a tax avoidance mechanism and appointed an interim manager to run the charity's affairs, as a result of actions taken by HMRC, a court has heard.
Details of the events leading up to the inquiry emerged this week during a hearing at the Royal Courts of Justice, where Mountstar PTC - the corporate trustee of the Cup Trust - has launched an appeal to the charity tribunal, challenging its decisions as disproportionate and an improper use of the regulator's powers.
Yesterday the court heard that when HMRC informed the Commission it had fined the Cup Trust for failure to provide information when requested, this was 'the last straw'.
Michelle Russell, head of investigations and enforcement at the Charity Commission denied claims that the action was taken because of public criticism of the Commission during a question session before the Public Accounts Committee (PAC) at which the Commission was slated for failing to take prompt action on the matter.
Instead, she said there was a 'catalogue' of issues the regulator was concerned about including the complex network of individuals involved in the tax avoidance scheme and the apparent conflicts of interest in their various positions; the risk that a trustee was benefiting financially from the scheme, and the charity's ongoing refusal to comply with HMRC demands for information.
Lawyers representing Mountstar queried why the Commission had chosen to act so quickly, without advising trustees of their plans. Russell said that because it was the first interim manager appointment to be funded by the Commission, it needed Treasury approval and the Commission expected that would take some time. Interim managers are normally paid for out of the charity's funds, but the Cup Trust did not have sufficient funds.
The Commission had carried out a non-statutory inquiry into the Cup Trust between March 2010 and March 2012 but had concluded that it could take no action because the trust was 'legally structured as a charity'.
Russell said at that at that point the Commission never envisaged it might take up to eight years to settle the gift aid claims. As the Cup Trust is wholly reliant on that gift aid income to operate, it will likely be inactive throughout that period, and the Commission does not like to have inactive charities on the Register.
The tribunal case is ongoing.