Why the charities tax scandal might lead to more transparency

The new legislation just might work.

We have all seen the stories in which celebrities have been named and shamed for participation in tax avoidance schemes. While some individuals have not always been blameless, the press can evoke similar righteous indignation with lurid tales of tax evasion involving innocent charities in the offshore world.

Tax evasion is not strictly the raison d’être of these enterprises, but there is rarely an innocent motive and is often used as a means of concealing identities. The charity is named as the beneficiary of an offshore trust although the charity itself never receives money from the trust and often, does not even know of the trust’s existence. Instead, the trustees exercise their power to add beneficiaries to benefit an individual who is not named in the trust deed although the charity gets nothing.

As the recent tax evasion stories demonstrate, these unregulated pseudo-charitable structures can be hijacked for shady purposes, and the surrounding press coverage saps one’s confidence in genuine charitable trusts. But could the new legal entity created specifically for charities cast a ray of light to dispel the gloom?

The Charitable Incorporated Organisation (CIO) was introduced in the Charities Act 2006 and, after a frustratingly long gestation period, was finally brought into being in the Charities Act 2011. The first CIOs were registered in December 2012 and since then, the Charity Commission has seen a steady rise in applications.  

The CIO is a corporate entity with a separate legal personality which, like its stablemate, the charitable company (usually limited by guarantee rather than shares), can contract and hold property in its own name and is regulated by the Charity Commission.

One advantage of a CIO as compared with the standard charitable companies is that the latter is subject to dual burden of regulation by the Charity Commission and Companies House. A CIO’s charity trustees and members have limited liability, which protects the trustee or members from incurring personal liability for any debts incurred by the charity, whereas charity trustees are lumbered with personal and (subject to the terms of the trust) unlimited liability. 

Although the delay has elicited caution in many charities considering conversion to CIO status and there is a sense that the CIO is, as yet, untested, the negative headlines linking charitable trusts (albeit incorrectly) to tax evasion may well encourage charities to move to a more transparent structure. Could the CIO yet blossom in May?

Emily O'Donnell is at private client law firm Maurice Turnor Gardner LLPRead more: Charitable giving fell by 20% in 2011-12

This story first appeared in Spear's magazine.

Photograph: Getty Images

This is a story from the team at Spears magazine.

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Richmond is a wake-up call for Labour's Brexit strategy

No one made Labour stand in Richmond Park. 

Oh, Labour Party. There was a way through.

No one made you stand in Richmond Park. You could have "struck a blow against the government", you could have shared the Lib Dem success. Instead, you lost both your dignity and your deposit. And to cap it all (Christian Wolmar, take a bow) you self-nominated for a Nobel Prize for Mansplaining.

It’s like the party strategist is locked in the bowels of HQ, endlessly looping in reverse Olivia Newton John’s "Making a Good Thing Better".

And no one can think that today marks the end of the party’s problems on Brexit.

But the thing is: there’s no need to Labour on. You can fix it.

Set the government some tests. Table some amendments: “The government shall negotiate having regard to…”

  • What would be good for our economy (boost investment, trade and jobs).
  • What would enhance fairness (help individuals and communities who have missed out over the last decades).
  • What would deliver sovereignty (magnify our democratic control over our destiny).
  • What would improve finances (what Brexit makes us better off, individually and collectively). 

And say that, if the government does not meet those tests, the Labour party will not support the Article 50 deal. You’ll take some pain today – but no matter, the general election is not for years. And if the tests are well crafted they will be easy to defend.

Then wait for the negotiations to conclude. If in 2019, Boris Johnson returns bearing cake for all, if the tests are achieved, Labour will, and rightly, support the government’s Brexit deal. There will be no second referendum. And MPs in Leave voting constituencies will bear no Brexit penalty at the polls.

But if he returns with thin gruel? If the economy has tanked, if inflation is rising and living standards have slumped, and the deficit has ballooned – what then? The only winners will be door manufacturers. Across the country they will be hard at work replacing those kicked down at constituency offices by voters demanding a fix. Labour will be joined in rejecting the deal from all across the floor: Labour will have shown the way.

Because the party reads the electorate today as wanting Brexit, it concludes it must deliver it. But, even for those who think a politician’s job is to channel the electorate, this thinking discloses an error in logic. The task is not to read the political dynamic of today. It is to position itself for the dynamic when it matters - at the next general election

And by setting some economic tests for a good Brexit, Labour can buy an option on that for free.

An earlier version of this argument appeared on Jolyon Maugham's blog Waiting For Tax.

Jolyon Maugham is a barrister who advised Ed Miliband on tax policy. He blogs at Waiting for Tax, and writes for the NS on tax and legal issues.