HMRC are investigating a charity in connection with a multi-million pound Gift Aid tax avoidance scheme. The Cup Trust had a single trustee, based in the Virgin Islands.

According to the Times, the charity has been under investigation by the Charity Commission but it had not broken any charity laws. It now appears that through the combination of offshore loans and abuse of Gift Aid it has enabled its donors to avoid tax of £46m yet distributed only £44,000 to charitable causes.

The Times reveals that using an offshore bank loan the trust purchased £1m gilts, which it then sold to investors for a nominal fee. The Trust then donated a few hundred pounds to a charity and the investors would sell the gilts and “donate” the money to the Cup Trust. This allowed them to claim between £250,000 and £375,000 (depending on whether they paid tax at 40 per cent or 50 per cent) under Gift Aid. Meanwhile the Cup Trust used the donation to repay the loan.

The Cup Trust was set up in 2009 with one trustee, Mountstar (PTC) registered in the Virgin Islands. Its three directors Matthew Jenner, John Mehigan and Darren George Stones are based in London. The Mirror reports that they earmarked fees of at least £7.7 million from the scheme.

HMRC’s spokesman said: “We can’t discuss the named charity for legal reasons but the government has made nearly a billion pounds available to us to police the tax rules. Where we find tax avoidance we challenge it and stop it as shown by a string of high-profile successes in the tax courts.”

Editorial comment

Its just sad day for legitimate charities, many of whom fought extremely hard to avoid any cap on unlimited income tax relief for donations made under Gift Aid. We all might question why HMRC should in the future, allow a UK charity to claim Gift Aid if it has offshore trustees, loans or assets.