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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Cabinet audit: what does the appointment of Andrea Leadsom as Environment Secretary mean for policy?

The political and policy-based implications of the new Secretary of State for Environment, Food and Rural Affairs.

A little over a week into Andrea Leadsom’s new role as Secretary of State for Environment, Food and Rural Affairs (Defra), and senior industry figures are already questioning her credentials. A growing list of campaigners have called for her resignation, and even the Cabinet Office implied that her department's responsibilities will be downgraded.

So far, so bad.

The appointment would appear to be something of a consolation prize, coming just days after Leadsom pulled out of the Conservative leadership race and allowed Theresa May to enter No 10 unopposed.

Yet while Leadsom may have been able to twist the truth on her CV in the City, no amount of tampering will improve the agriculture-related side to her record: one barely exists. In fact, recent statements made on the subject have only added to her reputation for vacuous opinion: “It would make so much more sense if those with the big fields do the sheep, and those with the hill farms do the butterflies,” she told an audience assembled for a referendum debate. No matter the livelihoods of thousands of the UK’s hilltop sheep farmers, then? No need for butterflies outside of national parks?

Normally such a lack of experience is unsurprising. The department has gained a reputation as something of a ministerial backwater; a useful place to send problematic colleagues for some sobering time-out.

But these are not normal times.

As Brexit negotiations unfold, Defra will be central to establishing new, domestic policies for UK food and farming; sectors worth around £108bn to the economy and responsible for employing one in eight of the population.

In this context, Leadsom’s appointment seems, at best, a misguided attempt to make the architects of Brexit either live up to their promises or be seen to fail in the attempt.

At worst, May might actually think she is a good fit for the job. Leadsom’s one, water-tight credential – her commitment to opposing restraints on industry – certainly has its upsides for a Prime Minister in need of an alternative to the EU’s Common Agricultural Policy (CAP); a policy responsible for around 40 per cent the entire EU budget.

Why not leave such a daunting task in the hands of someone with an instinct for “abolishing” subsidies  thus freeing up money to spend elsewhere?

As with most things to do with the EU, CAP has some major cons and some equally compelling pros. Take the fact that 80 per cent of CAP aid is paid out to the richest 25 per cent of farmers (most of whom are either landed gentry or vast, industrialised, mega-farmers). But then offset this against the provision of vital lifelines for some of the UK’s most conscientious, local and insecure of food producers.

The NFU told the New Statesman that there are many issues in need of urgent attention; from an improved Basic Payment Scheme, to guarantees for agri-environment funding, and a commitment to the 25-year TB eradication strategy. But that they also hope, above all, “that Mrs Leadsom will champion British food and farming. Our industry has a great story to tell”.

The construction of a new domestic agricultural policy is a once-in-a-generation opportunity for Britain to truly decide where its priorities for food and environment lie, as well as to which kind of farmers (as well as which countries) it wants to delegate their delivery.

In the context of so much uncertainty and such great opportunity, Leadsom has a tough job ahead of her. And no amount of “speaking as a mother” will change that.

India Bourke is the New Statesman's editorial assistant.