In The Charity Commission v Mountstar [2016] EWHC 876 (21 April 2016), the High Court gave a direction that the interim managers of a charity trust involved in an avoidance scheme should be allowed to discontinue Gift Aid claims.
As part of a tax avoidance scheme, clients of a tax advice firm had claimed higher rate tax relief on what were portrayed as charitable donations to a trust. In addition, the trust had made claims totalling about £46m for Gift Aid on the ‘donations’. Those Gift Aid claims had been rejected by HMRC (on the basis that they did not satisfy the requirements of ITA 2007 s 416). The Charity Commission sought the sanction of the court (under The Charities Act s 78(5)(b)) for the interim managers’ decision to discontinue the trust’s appeal, following leading counsel’s advice that the trust’s prospects were ‘very slim indeed, or negligible’. The advice pointed, in particular, to the fact that the donations formed part of a pre-ordained series of transactions; and viewed realistically as a whole, these only involved the acquisition of a very small amount by the charity. The interim managers had been appointed by the Charity Commission, whilst Mountstar was the sole corporate trustee of the trust and contended that the appeal should not be discontinued.
The court observed that there must be a real question as to whether the court should give directions to interim managers; and that it was not ‘there to act as a sort of bomb shelter’ for interim managers operating under the supervision of the Charity Commission’ (T&D Industries [2000] 1 WLR 646). However, it found that the exceptional circumstances of the case (the substantial amounts at stake and the public controversy surrounding the trust) justified the involvement of the court.
As for the decision of the interim managers not to pursue the claims, the court found that they had not been obliged to accept the funding which had been offered to them to fight the claims (particularly since it may prove insufficient). It found that their decision to discontinue the claims had been within the range of decisions to which rational charity trustees could properly come, given the very negative advice obtained from counsel.
Why it matters:At the beginning of 2013, The Times and other newspapers had published articles describing the scheme as ‘a massive tax avoidance scam’ and suggesting that HMRC and the Charity Commission were not ‘up to the job’ of policing charity tax avoidance. An inquiry by the House of Commons Public Accounts Committee had also led to the issue of a report which had concluded: ‘it is clear that the trust was set up as a tax avoidance scheme’. In this context, the decision of the High Court is not surprising.
Also reported this week:
HMRC v Bristol and West Novation of derivative contracts between companies of the same group
In The Charity Commission v Mountstar [2016] EWHC 876 (21 April 2016), the High Court gave a direction that the interim managers of a charity trust involved in an avoidance scheme should be allowed to discontinue Gift Aid claims.
As part of a tax avoidance scheme, clients of a tax advice firm had claimed higher rate tax relief on what were portrayed as charitable donations to a trust. In addition, the trust had made claims totalling about £46m for Gift Aid on the ‘donations’. Those Gift Aid claims had been rejected by HMRC (on the basis that they did not satisfy the requirements of ITA 2007 s 416). The Charity Commission sought the sanction of the court (under The Charities Act s 78(5)(b)) for the interim managers’ decision to discontinue the trust’s appeal, following leading counsel’s advice that the trust’s prospects were ‘very slim indeed, or negligible’. The advice pointed, in particular, to the fact that the donations formed part of a pre-ordained series of transactions; and viewed realistically as a whole, these only involved the acquisition of a very small amount by the charity. The interim managers had been appointed by the Charity Commission, whilst Mountstar was the sole corporate trustee of the trust and contended that the appeal should not be discontinued.
The court observed that there must be a real question as to whether the court should give directions to interim managers; and that it was not ‘there to act as a sort of bomb shelter’ for interim managers operating under the supervision of the Charity Commission’ (T&D Industries [2000] 1 WLR 646). However, it found that the exceptional circumstances of the case (the substantial amounts at stake and the public controversy surrounding the trust) justified the involvement of the court.
As for the decision of the interim managers not to pursue the claims, the court found that they had not been obliged to accept the funding which had been offered to them to fight the claims (particularly since it may prove insufficient). It found that their decision to discontinue the claims had been within the range of decisions to which rational charity trustees could properly come, given the very negative advice obtained from counsel.
Why it matters:At the beginning of 2013, The Times and other newspapers had published articles describing the scheme as ‘a massive tax avoidance scam’ and suggesting that HMRC and the Charity Commission were not ‘up to the job’ of policing charity tax avoidance. An inquiry by the House of Commons Public Accounts Committee had also led to the issue of a report which had concluded: ‘it is clear that the trust was set up as a tax avoidance scheme’. In this context, the decision of the High Court is not surprising.
Also reported this week:
HMRC v Bristol and West Novation of derivative contracts between companies of the same group
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