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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The tale of Battersea power station shows how affordable housing is lost

Initially, the developers promised 636 affordable homes. Now, they have reduced the number to 386. 

It’s the most predictable trick in the big book of property development. A developer signs an agreement with a local council promising to provide a barely acceptable level of barely affordable housing, then slashes these commitments at the first, second and third signs of trouble. It’s happened all over the country, from Hastings to Cumbria. But it happens most often in London, and most recently of all at Battersea power station, the Thames landmark and long-time London ruin which I wrote about in my 2016 book, Up In Smoke: The Failed Dreams of Battersea Power Station. For decades, the power station was one of London’s most popular buildings but now it represents some of the most depressing aspects of the capital’s attempts at regeneration. Almost in shame, the building itself has started to disappear from view behind a curtain of ugly gold-and-glass apartments aimed squarely at the international rich. The Battersea power station development is costing around £9bn. There will be around 4,200 flats, an office for Apple and a new Tube station. But only 386 of the new flats will be considered affordable

What makes the Battersea power station development worse is the developer’s argument for why there are so few affordable homes, which runs something like this. The bottom is falling out of the luxury homes market because too many are being built, which means developers can no longer afford to build the sort of homes that people actually want. It’s yet another sign of the failure of the housing market to provide what is most needed. But it also highlights the delusion of politicians who still seem to believe that property developers are going to provide the answers to one of the most pressing problems in politics.

A Malaysian consortium acquired the power station in 2012 and initially promised to build 517 affordable units, which then rose to 636. This was pretty meagre, but with four developers having already failed to develop the site, it was enough to satisfy Wandsworth council. By the time I wrote Up In Smoke, this had been reduced back to 565 units – around 15 per cent of the total number of new flats. Now the developers want to build only 386 affordable homes – around 9 per cent of the final residential offering, which includes expensive flats bought by the likes of Sting and Bear Grylls. 

The developers say this is because of escalating costs and the technical challenges of restoring the power station – but it’s also the case that the entire Nine Elms area between Battersea and Vauxhall is experiencing a glut of similar property, which is driving down prices. They want to focus instead on paying for the new Northern Line extension that joins the power station to Kennington. The slashing of affordable housing can be done without need for a new planning application or public consultation by using a “deed of variation”. It also means Mayor Sadiq Khan can’t do much more than write to Wandsworth urging the council to reject the new scheme. There’s little chance of that. Conservative Wandsworth has been committed to a developer-led solution to the power station for three decades and in that time has perfected the art of rolling over, despite several excruciating, and occasionally hilarious, disappointments.

The Battersea power station situation also highlights the sophistry developers will use to excuse any decision. When I interviewed Rob Tincknell, the developer’s chief executive, in 2014, he boasted it was the developer’s commitment to paying for the Northern Line extension (NLE) that was allowing the already limited amount of affordable housing to be built in the first place. Without the NLE, he insisted, they would never be able to build this number of affordable units. “The important point to note is that the NLE project allows the development density in the district of Nine Elms to nearly double,” he said. “Therefore, without the NLE the density at Battersea would be about half and even if there was a higher level of affordable, say 30 per cent, it would be a percentage of a lower figure and therefore the city wouldn’t get any more affordable than they do now.”

Now the argument is reversed. Because the developer has to pay for the transport infrastructure, they can’t afford to build as much affordable housing. Smart hey?

It’s not entirely hopeless. Wandsworth may yet reject the plan, while the developers say they hope to restore the missing 250 units at the end of the build.

But I wouldn’t hold your breath.

This is a version of a blog post which originally appeared here.

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