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Trustees have important duties to ensure a charity is run properly. Two recent inquiry reports from the Charity Commission have highlighted what can go wrong if trustees do not fulfil these responsibilities. 

The Charity Commission registers and regulates all charities in England and Wales and submits guidance for trustees on their legal responsibilities. In these cases, trustees were responsible for mismanagement or misconduct, resulting in the commission revoking their registered status. 

 

The Cup Trust: an attempt to avoid gift aid tax

The Cup Trust was set up in 2009 as a grant-making charity, providing funds to small or start-up charities supporting children and young adults, with only one trustee. 

The Charity Commission launched its inquiry into The Cup Trust after the charity’s sole trustee failed to produce information to HMRC regarding their gift aid claims. The trustee used a complex web on transactions to avoid tax and receive money from gift aid. This was a complex charity case which took five years to conclude.

The Cup Trust received loans that it invested in gilt bonds, which were then sold under market value with the condition that there was a donation equivalent to the market value given back to the charity. The donation was then processed through gift aid and the charity repaid the loans. Provided this all happened within 24 hours, no interest was charged. 

The inquiry revealed that just £55,000 of The Cup Trust’s £175million income went to charitable causes and that the charity later tried to seek £46million in gift aid. The Charity Commission concluded that the sole trustee was responsible for ‘clear mismanagement and misconduct’ as well as failing to fulfil their legal duties. Needless to say, this was a tax avoidance scheme and the charity no longer exists. 

 

Helping Hands for the Needy: mismanagement and misconduct 

Registered in 2002, Helping Hands for the Needy was set up for the relief of poverty anywhere in the world, especially those affected by natural disasters, war and conflicts. This charity’s multiple trustees failed to properly safeguard the charity’s assets. One trustee had sole control over bank accounts and was able to make payments without authorisation from other trustees. 

The Charity Commission opened its inquiry in 2010. They found large payments were being made from the charity to the trustee and their family without proper authorisation. There were a number of other payments and benefits to the trustee which were not substantiated, such as motor expenses, around £9,000 in parking and speeding fines and personal building projects totalling to just under £15,000. 

Furthermore, major expenditure, which was claimed to be for charitable purposes, was not properly evidenced and it was therefore unclear what the funds were used for. Proper records were not kept regarding overseas projects and the charity also failed to fulfil with everyday compliance matters, including the need to supply SORP compliant accounts within the required deadlines to the Charity Commission. 

Helping Hands for the Needy was removed from the registered charity list in 2017 and the inquiry closed earlier this year, concluding misconduct and mismanagement of the charity by the trustees. 

These are two extreme examples but they do illustrate the importance of charity trustees complying with their legal responsibilities.

 

If you would like any advice on Charity matters, please do not hesitate to contact me or our specialist Charities and Not for Profit team