Decision

The Cup Trust inquiry results (formerly a registered charity)

Published 18 January 2019

This decision was withdrawn on 19 October 2023

No longer current.

A statement of the results of an Inquiry (“the Inquiry”) into The Cup Trust (‘the Charity’) which was removed from the Register of Charities on 26 May 2017 (formerly a registered charity number 1129044).

The charity

The Charity was set up in 2009 by Mr Matthew Jenner, as its settlor (‘the Settlor’). The Settlor appointed a company called Mountstar (PTC) Limited (‘Mountstar’ or ‘the Trustee’) to establish the trust and be its first trustee. Mountstar was from the start and remained the Charity’s sole corporate trustee^{[footnote 1]}.

The Charity was established and governed by a declaration of trust made by the Settlor, dated 10 March 2009, and was subsequently registered by the Commission as a charity on 7 April 2009.

Mountstar is a private trust company, incorporated under the laws of the British Virgin Islands as a company and operates out of Jersey. The deed of trust described Mountstar as having a principal control and management address as in London.

The declaration of trust specified that the Charity be governed by the law of England and Wales and the Charity’s objects were to apply its income ‘for all and any charitable purposes as defined within Section 1 of the Charities Act 2006’ (now the Charities Act 2011 (‘the Act’))^{[footnote 2]}. It therefore had what is commonly known as “general charitable purposes”. The Charity was settled with £100 and then received an initial donation from an entity connected with one of the directors of Mountstar of £10,000.

The application to the Commission to register the Charity recorded that it was being set up as a grant-making charity, to give grants to other charities, generally too small or start-up charities that seek to benefit children and/or young adults.

Mountstar, provided trustee services to other trusts as well as acting as Trustee to the Charity. Prior to the Commission’s Inquiry, the Charity reported in its annual accounts that its income and expenditure, were as follows for the accounting years ending 31 March 2010, 2011 and 2012:

Financial year	Income	Expenditure
2009/10	£97,590,164	£97,451,195
2010/11	£78,941,598	£78,973,422
2011/12	£5,147	£0

In those years, the accounts record that the Charity made grants to charities that benefit children and young adults totalling £0 for 2010, £55,000 for 2011/12 and £97,292 for 2012/13 (£18,500 of which had been earmarked for certain charities the previous year). Shortly before the Inquiry and the appointment of the Interim Manager in April 2013, a £13,500 grant to a charity was made in April 2013.

The Charity ceased operating on 26 May 2017 and was removed from the Register of Charities (‘the Register’) on the transfer of its remaining funds £11,529.84 by the Interim Managers appointed by the Commission to a children’s hospice charity to use for some of its charitable projects.

The Inquiry into the Charity formally closes with the publication of this report.

Background to the 2013 Inquiry

It is not possible to understand or explain the findings of the Inquiry into the Charity without first understanding how the tax avoidance scheme (“the Scheme”) the Charity became involved in in 2010 worked, the engagement the Commission had with the Charity about this in 2010-2012 and why the organisation was regarded as a charity. So before setting out the findings and conclusions of the recent Inquiry, starting in 2013, this report first explains these background issues.

The Commission first investigated the Charity in 2010 following concerns reported to it about its participation in a tax avoidance scheme.

On 30 January 2010, Mountstar entered into an agreement with a corporate fundraiser on behalf of the Charity, following which the charity participated in the Scheme.

This section explains the background and context to the Commission’s statutory inquiry into the Charity starting in 2013, as follows:

• the Scheme in which the Charity participated
• who was involved in the Charity, Mountstar and the various parties to the scheme
• why the Cup Trust was registered as a charity
• the basis upon which the 2010 investigation was closed
• the respective roles of the Commission and HMRC in tax matters

The Scheme

The scheme itself was very complex. At the time of the 2010 investigation not all details of the scheme and how it worked were known or understood.

The principles about how the scheme worked

In summary, from January to November 2010, the scheme engaged in a number of financial interactions, circular in nature, involving donors and complex gilt^{[footnote 3]} transactions, which both required and resulted in donations being made to the charity^{[footnote 4]}. In practice, all the transactions in a particular round happened on the same day.

The Charity entered into loan arrangements and with the proceeds, bought a number of UK treasury gilt-edged securities at market value, which it then sold to a third party intermediary, at a nominal sum below market rate value, but, crucially, subject to a “call option”.

The option required that the third party who acquired the gilts secure a separate donation to the charity in return, of a value equivalent to 100% of the market value of the gilts, plus a nominal sum. It was a condition that the donation be received by the Charity on the same day (or within 24 hours), otherwise the legal title to the gilts returned to the Charity. So the third party intermediary then sold the gilts to a number of third party UK tax-paying individuals for a nominal sum, on the proviso (in accordance with the option described above) that the Charity received back from the individuals upon their onward sale of the gilts a donation of cash equivalent to 100% of the market value of the gilts, plus another nominal sum.

Although the Charity appeared originally to sell the gilts at below market value, the condition attached to the sales meant that it received marginally more than the initial purchase price in another way through the combination of the proceeds of the below market sale of the gilts and the receipt of the conditional ‘donation’ (which covered the remaining value of the gilts and the nominal additional sum) from tax payers.

The Charity then used the donations to repay the original loans. Providing they were repaid in 24 hours, they were interest free. The Charity separately made an application for tax relief in the form of a gift aid claim on the value of the donations made. The donors were also at liberty to make a claim for personal tax relief.

For the Charity, the success of the scheme depended on it being eligible to claim gift aid on the donations. It is this element, if the scheme worked and if it was recognised as legitimate by HM Revenue and Customs (‘HMRC’)^{[footnote 5]}, that would have brought in additional income through the recovery of gift aid on the donations (from individual taxpayer participants, represented as being ‘donors’). This money would then have been available for the Charity to apply for charitable purposes. However, at this stage in 2010, this was far from guaranteed.

Additionally, the scheme worked on the premise that the donors, if higher-rate tax payers, would be able to claim personal tax relief on their donations to the charity and so, through participation in the scheme, they would also gain by reducing their personal tax payable.

The Charity made claims for the accounting periods ending March 2010 and 2011, for gift aid and gift aid transitional relief totalling £46,418,202. The Charity’s gift aid claims were never accepted or paid out by HMRC and the associated appeals filed in the name of the Charity initially were eventually withdrawn, with the sanction of the High Court, by the Interim Managers appointed by the 2013 Inquiry.

The UK taxpayers were introduced to the Scheme by the intermediary. Under the terms of an agreement with the intermediary, if the Charity’s gift aid claims were successful, the Charity would have been liable to pay fees of approximately £7.8 million to the intermediary. As the Charity’s gift aid claims were never paid, the fees never became due.

The directors of Mountstar confirmed that the Charity continued to fundraise using the Scheme until November 2010.

More detail about the Charity’s Participation in the Scheme and the Scheme’s details as understood by the Inquiry is explained in greater detail as part of the Inquiry’ findings below.

The Commission established the following:

The Cup Trust’s key personnel and their connected companies/ partnerships

Mountstar was incorporated on the 2nd January 2009, in the British Virgin Islands. Mountstar was the trustee of the charity and had general control and management of the Charity.

The decisions of Mountstar were taken by its directors, with one director being able to hold a quorate meeting. These directors would have had duties^{[footnote 6]} as directors to Mountstar. At various times, the charity has had 3 directors: Mr Matthew Jenner; Mr Anthony Mehigan; and Mr Darren Stones:

• Mr Jenner was appointed a director on the same day as the company’s incorporation
• the second director, Mr Mehigan shortly afterwards
• the third director, Mr Stones, on 26th January 2010^{[footnote 7]}
• Mr Stones later resigned as Director, on 22nd April 2013^{[footnote 8]}
• Mr Jenner resigned as a director of Mountstar on 10th April 2014

Mr Jenner and Mr Mehigan had been business associates since 2005. They owned and were directors of a company called NT Tax Adviser Limited (“NT”). It marketed various tax avoidance schemes which, if successful, earnt substantial contingency fees^{[footnote 9]}. The Commission was told by the Trustee in 2011 that Mr Jenner had a tax planning background with business and financial expertise in offshore structures.

The Commission was informed by the Trustee during the 2010 investigation that in December 2009, an organisation called HNW Tax Advice Partnership (“HNWTAP”) which provided tax advice to individuals, became aware of a scheme and proposed it to the Charity. Until 17 December 2010, Mr Jenner (95%) and HNW Partnership Trust (“HNWPT”) (5%) were the two partners of HNWTAP. Although the exact ownership changed subsequently, for all material purposes and times, a key beneficiary was Mr Jenner.

HNW Tax Services (“HNWTS”) was involved in the Scheme. HNWTS acted as attorney for individuals under a power of attorney agreement^{[footnote 10]}.

Both HMWTAP and HNWTS were general partnerships established by deed on 20 November 2009 under English Law. The partners of both HNWTAP and HNWTS had been Mr Jenner and the trustees of HNWPT of which Mr Jenner was a beneficiary.

Mr Jenner and Mr Mehigan set up a UK registered company, Romangate Limited (“Romangate”)^{[footnote 11]}. The Charity used borrowed money to buy gilts from Romangate, acting as trustee for the actual vendor. Romangate was incorporated on 24th November 2008 and jointly owned by them until 9th January 2009. Its ownership later transferred to a charitable trust whose trustee is Plectron Trust Company Limited (“Plectron”), a Jersey‐registered trust company. Plectron held some or all of Mr Jenner’s shares in HNWTAP on trust for the families of Mr Jenner and his civil partner.

Mr Jenner has been a director of Romangate through the period material for the scheme, Mr Mehigan until 10th February 2010 and Mr Stones until 22nd December 2010.

Further details of parties, personnel and dates of involvement are set out in Annexes 1 and 2.

The Commission’s first investigation into the charity in 2010

On 11 March 2010, the Commission opened an investigation^{[footnote 12]} into the Charity (‘the investigation’) because of concerns regarding its structure and its activities in relation to the scheme. The key issues examined included whether the Charity was properly established as a charity, namely whether it is within the jurisdiction of the High Court of England and Wales, and whether its purposes are exclusively charitable under the law of England and Wales.

The registration of the Charity and whether it was a charity

Under charity law, a charity is an institution which is established for charitable purposes only, and which is subject to the charity law jurisdiction of the High Court.

The Commission must register any charity which applies for, and meets the legal requirements for, registration. It cannot turn down an organisation for registration if it meets the requirements for registration even though there may be concerns about its management or governance.

The purposes of an organisation will in most cases be set out in the legal document which establishes it, which in the case of the Charity was a trust deed. The purposes of an organisation are not the same as the motives of those who establish it, or the activities which it carries out. In other words it is possible for someone to create a charity with the intention of using that charity to do particular things other than furthering the charity’s purposes – that does not necessarily mean that it is not a charity.

The application to register the Charity was assessed at the time on the information provided on behalf of the Charity in its application. This included a copy of its trust deed, which included a statement of the purposes for which it was established. That statement of purposes was:

“all and any charitable purposes (as defined within section 1 of the Charities Act 2006)”

The Charity’s bank account was with an offshore bank in Jersey. This bank account was opened using £10,100 funds donated by Mr Jenner as settlor of The Cup Trust. In September 2010 the Charity opened two bank accounts in the UK.

In December 2009 and January 2010, Somerton Charitable Trust, a charity in Northern Ireland, donated £20,000 and £80,000 respectively to the Charity. In September 2010, the Charity opened two bank accounts in the UK.

The Trustee told the investigation that they initially intended to raise funds through donations from individuals and companies and other grant making charities (such as Somerton Charitable Trust). The investigation was told that the idea for the Scheme involving donations from individuals emerged in September 2009, after the Charity had been set up.

The Trustee told the investigation that from late January to November 2010, funds had been raised by the Charity from individuals who were intending to claim gift aid on their donations.

It was not possible to conclude that The Cup Trust, in so far as it was charity, was not established as a charity subject to the charity jurisdiction of the High Court of England and Wales given its administration and property within the jurisdiction.

In the case of The Cup Trust, the purposes expressed by the governing document were unequivocal, so there was no scope for the court and consequently the Commission to take either the motive of those setting up the trust or its activities to determine its charitable status in law. If however, a charity carries out activities which are not permitted, that may be a breach of trust for which trustees may be accountable. However, that in itself could not be a reason to conclude that The Cup Trust was not and never was a charity in law.

In consequence, it The Cup Trust was properly registerable as a charity at that time on the information known, notwithstanding its later activities in relation to the participation in the Scheme and the wider benefits which might flow to the individual taxpayers in relation to the Scheme. This position was confirmed by independent counsel instructed by the Commission. The Tribunal also subsequently accepted that it was a charity.

Notwithstanding the conclusion that this was properly registered at the time, the Commission has significantly improved and made more robust its registration and connected processes to ensure that there is now robust post-registration monitoring of charities where there are concerns or where the Commission has required certain actions at or in connection with registration.

Where there is sufficient evidence at registration that an organisation does not meet the legal test to be a charity and so is not eligible to be registered as a charity, applications are rejected. Where appropriate, the organisation and/or individuals concerned may be referred to HMRC and/or other regulators.

Other concerns in the 2010 investigation and why the investigation was closed at that point

Other regulatory issues were identified during the 2010 investigation and dealt with, including the failure by the Charity to submit its accounts on time and governance issues in relation to the adequacy of its records, policies and procedures.

The 2010 investigation reviewed the charity’s records including the minutes of trustee meetings, bank statements, annual financial accounts, internal policies and procedures and a sample of transaction bundles in regard relating to the Scheme. By the end of the 2010 investigation as a result of the Commission’s interventions all outstanding annual financial accounts had been submitted.

The 2010 investigation met with Mr Jenner of Mountstar in July 2010 and a second time in December 2010 at the Charity’s London address, when a review of some of the Charity’s records took place. The 2010 investigation also requested the Trustee provide additional information.

The investigation was concerned about the apparent lack of charitable activity of the Charity. The investigation established that during the financial year ending 31 March 2011 the Charity had decided to award grants of £55,000 to six charities. The Charity stated in its Annual Trustee’s Report 2011 that it would further make £80,000 grants to UK registered charities after 31 March 2011 but “no grants had been allocated or applied” connected to the gift aid claim^{[footnote 13]}. It was evident that the difficulty was that the Charity’s ability to carry out charitable activity in the form of making grants, aside from these relatively small scale ones, was dependent on it receiving further income from gift aid claims as a result of the Scheme.

It was clear that the Charity would only obtain substantial income and benefit from the Scheme, if HMRC determined that the Scheme was legitimate and accepted the gift aid claims were valid.

As a result of the associations and relationships between one or more directors of the Trustee and the partnerships and companies, which were instrumentally involved in the scheme, the 2010 investigation also reminded them of the need to properly manage conflicts of interest by the directors, due to the various parties and roles played in the Scheme entities.

The Commission took the view in the 2010 investigation that it was not able to conclude at that stage whether the Trustee, or the directors of Mountstar, had acted exclusively in the best interests of the Charity in furtherance of its charitable purposes in relation to the Charity’s participation in the Scheme.

The Commission further informed Mountstar, as trustee, that the Commission would not, at that time, make any further determination about its activities in relation to the Scheme, pending the outcome of any HMRC decision on the Charity’s gift aid claim. In reaching this decision, the investigation was aware of and took into account that another regulator, HMRC, was considering the legitimacy of the scheme and whether gift aid would be payable.

In 2012, the Commission closed its investigation on this basis having decided that no action would be taken at that time to avoid prejudicing HMRC’s enquiries. The investigation however notified Mountstar as trustee that if the Commission received additional or new information or evidence, consideration would be given to opening a new investigation.

The investigation was as a result closed on 7 March 2012 on this basis, pending the outcome of whether or not the gift aid scheme was recognised as legitimate by HMRC.

The Commission’s role in tax matters

As a result of their legal status, charities enjoy certain tax benefits and many use the HM Revenue and Customs’ (“HMRC”) Gift Aid scheme to increase the value of charitable donations by reclaiming basic rate tax on a donor’s gift. If the donors pay higher rate tax the individuals can also claim extra relief on these donations, reducing the amount of tax paid on their income. Whether a charity or its donors are lawfully able to claim tax relief and the issue of whether a tax scheme is legitimate or not is determined by HMRC^{[footnote 14]}.

The Commission’s remit is in part to determine whether an organisation is a charity under the law and to ensure trustees comply with their legal obligations in managing charities. It has a statutory function to identify and investigate abuse and mismanagement in charities and, where appropriate, take protective or remedial action. It is for HMRC, not the Commission, to decide the legitimacy or otherwise of tax matters in relation to charities.

The Commission’s role as charity regulatory therefore focuses on ensuring that trustees discharge their legal duties as charity trustees in managing and administering the charity properly and responsibly. Where issues are raised about taxation matters or concerns about the operation of a charity being examined by other regulators, the Commission considers whether they indicate misconduct or mismanagement in the administration of the charity and whether it needs to protect charity property.

The Act contains a set of specific statutory gateways that permits the Commission lawfully to give information to and receive information from, other public authorities, including one specifically for and with HMRC^{[footnote 15]}. HMRC and the Commission have regular discussions about charity matters, including tax avoidance issues. There are regular exchanges of information about charities of common concern, under the statutory gateway. However, the Commission is prohibited under the law from confirming which charities these discussions relate to, whether it has even discussed them with HMRC or disclose anything about these discussions. This is because under section 57(3) of the Act it is a criminal offence for the Commission to disclose this information without the express consent of HMRC^{[footnote 16]}.

Following the 2010 investigation, after opening the Inquiry and in light of the public interest in these matters, the Commission updated and published further information on charities’ fiduciary duties as regards tax matters and its work with HMRC on these^{[footnote 17]}.

Events leading up to the new Inquiry in April 2013

The Commission re-commenced its regulatory engagement with Mountstar in February 2013. This was due to various accounting issues identified by the Commission, ongoing serious concerns^{[footnote 18]} arising from its participation in the Scheme, and brought to the Commission’s attention by HMRC^{[footnote 19]} and growing significant public interest in the affairs of the Charity.

On 15 February 2013, Mr Jenner, representing Mountstar, told the Commission that HMRC had opened enquiries into the gift aid claims submitted by the Charity and all monies were to be withheld by HMRC until such time as its enquiries were complete.

On 22 March 2013 he also told the Commission that HMRC had opened a formal enquiry into the Charity’s 2010/11 gift aid claim by the issue of an enquiry notice on 19 December 2012 under Schedule 1A of the Taxes Management Act 1970, which permits HMRC to withhold repayments during an enquiry.

By then, the Charity had made claims to HMRC for gift aid and gift aid transitional relief, totalling £46,418,271.55, for the accounting periods ending March 2010 and 2011. The claims were submitted to HMRC in September 2011 (for its 2009/10 financial year) and in February 2012 (for its 2010/11 financial year). The Commission noted that according to HMRC’s website, a claimant should expect four to five weeks for the claim to be paid^{[footnote 20]}. Mr Jenner confirmed in early 2013, that still no gift aid had been paid to the charity by HMRC.

The 2013 accounts later submitted to the Commission on 11 April 2013 stated that the gift aid claim could potentially take in excess of 3 years to resolve.

Information shared with the Commission by HMRC in 2013

HMRC disclosed to the Commission on 10 April 2013 that it had been requesting information from the Charity about the gift aid claim since 4 September 2012 and this request for information had not been complied with (HMRC gave the Commission formal consent to disclose this to the Charity on 11 April 2013)^{[footnote 21]}. The Commission was still concerned about the issue of how conflicts of interest were managed and the extent to which there were any personal benefits directly or indirectly arising out of the Scheme and the Charity’s involvement in it. This was coupled with the clear public concerns about the Scheme reflecting a lack of public trust and confidence in the Charity and exacerbated by the information received on 10 April 2013 about the Charity’s handling of the gift aid claims.

The Commission also learned that on 19 December 2012, HMRC issued a formal, legal information notice to the Charity to provide information in connection with its inquiries. The Trustee did not comply with the notice and the Charity was fined £300 on 11 February 2013, which the Trustee subsequently paid.

When HMRC did not receive the requested information from the Charity, it issued further daily penalties of £60 for failure to comply with the legal notice, charged from 12 February 2013 to 9 April 2013 (totalling £3,420). HMRC sent a letter to the Trustee on 10 April 2013, explaining that the Trustee had until 10 May 2013 to provide the information requested and HMRC would raise further daily penalties, until it received the required information. HMRC provided a copy of this notice to the Commission on 10th April 2013.

The Commission’s view was that in light of the then recent engagement with the Trustee and the new information from HMRC that there was sufficient new evidence to open a statutory inquiry under powers in section 46 Charites Act 2011.

The 2013 Inquiry

On 12 April 2013 the Commission then opened a statutory inquiry (“the Inquiry”).

The decision was explained to the Trustee that it was made in light of the inherent conflicts of interest growing more acute the longer the gift aid claim took, the likelihood of HMRC challenge and litigation, as well as concern that the Trustee was failing to provide the necessary responses to HMRC, as evidenced by their need to issue financial penalties.

The Commission also explained that the Inquiry was opened to examine the following issues:

• the apparent failure of the Charity to comply with a legal notice issued by HMRC to provide information with regard to the Charity’s gift aid claims
• the Charity’s participation in the tax avoidance/ gift aid Scheme, that was now likely to fail, given HMRC’s public position on the type of avoidance scheme in which the Charity was involved and the implications for the Charity if it did fail
• conflicts of interest, the extent to which they were properly managed, in particular in connection with one or more directors of the Trustee in relation to the Scheme
• payments and/or benefits to those involved with the Charity and/or in the Scheme, including where if there were fiduciary relationships, any duty to account to the Charity
• the extent to which the Trustee discharged its duties and responsibilities as charity trustee

The immediate appointment of the Interim Managers and other protective measures

The Commission decided that it immediately needed to appoint an interim manager to take control of the charity’s management and administration, to the exclusion of the Trustee. The Inquiry exercised the power in section 76 (3) (g) of the Act to appoint an interim manager. The order was made on 26 April 2013 to appoint Jonathan Burchfield of Stone King LLP as the interim manager (“the Interim Manager”). The Commission granted the Interim Manager “all the powers and duties of the trustee of the Charity to the exclusion of the trustee of the Charity with effect from” 26 April 2013.

On the same day, 26 April 2013, the Inquiry made an order under section 76(3) (d) of the Act, directing the Trustee not to part with any property it held on behalf of the Charity without the prior written approval of the Commission, including but not restricted to, the Charity’s books and records and any property in its bank accounts^{[footnote 22]}. This is sometimes referred to as a freezing order and was in place until the Interim Manager took effective control over the financial affairs of the Charity.

On 18 February 2014, the Commission appointed an additional Interim Manager, Ann Phillips of Stone King LLP, to work alongside Mr Burchfield (collectively “the Interim Managers”). This was due to Mr Burchfield taking a sabbatical. After completing their work as described below, the Interim Managers were discharged on 26 May 2017. A summary of the Interim Managers’ functions and work is at Annex 3.

Findings of the 2013 Inquiry

This section, sets out a summary of the main findings of the Inquiry against each of the issues set out above the Inquiry was set up to examine.

Any references to the Tribunal (“the Tribunal”) and Tribunal decision are to the First Tier Charity Tribunal and the Tribunal’s decision of 17 October 2013. The Trustee challenged the Commission’s decision to open an inquiry and appoint the Interim Manager, using both the Commission’s internal Decision Review procedure and its rights of appeal to the First-tier Tribunal (Charity). The Commission’s decisions were upheld by its internal Decision Review on 15 July 2013 and by the Tribunal on 17 October 2013 respectively. The Tribunal decision made a number of findings of fact and raised some issues that it was clear needed to be examined further by the Inquiry as it progressed.

1. Failure to comply with a legal notice issued by HMRC to provide information with regard to the charity’s gift aid claims

The Inquiry found there was persistent non-co-operation by the Charity with HMRC from September 2012 onwards, resulting in the charity effectively being prevented from progressing the gift aid claim. Specifically:

• on 4 September and 19 December 2012, HMRC issued formal, legal information notices to the Charity requiring it to provide information in connection with its inquiries
• the Trustee did not respond on behalf of the Charity to comply with the notice
• the Charity was fined £300 on 11 February 2013, which the Trustee subsequently paid
• when HMRC did not receive the requested information from the Charity, it issued further daily penalties of £60 for failure to comply with the legal notice, charged from 12 February 2013 to 9 April 2013 (totalling £3,420)
• HMRC sent a letter to the Trustee on 10 April 2013, explaining that the Trustee had until 10 May 2013 to provide the information requested and HMRC would raise further daily penalties against the Charity, until it received the required information

HMRC issuing the Charity with a penalty for non-compliance, demonstrated the seriousness with which HMRC viewed the Trustee’s non-co-operation. This non-co-operation continued when the Trustee repeatedly failed to comply with HMRC’s legal notice, resulting in fines being imposed on the charity on a continuing basis.

The Tribunal decision notes that as charities are established for public benefit and enjoy special privileges, advantages and tax exemptions which carry with them an obligation to be open and transparent in the provision of information to the Commission which extends to the provision of information to HMRC^{[footnote 23]}.

The Inquiry found that the Trustee’s failure to co-operate with HMRC by not complying with the legal notices addressed to the Trustee to provide information about the Charity’s gift aid claims, was evidence of mismanagement in the administration of the Charity.

The Inquiry established that in practice it was Mr Jenner who made all of the decisions about how to deal with HMRC’s requests, rather than the other two directors^{[footnote 24]}. All of the correspondence with HMRC was with Mr Jenner. He was the person dealing with HMRC on behalf of Mountstar. The Tribunal decision noted that Mr Jenner was unable to give any sensible explanation at all to the Tribunal for the lateness in providing information to HMRC, with the result that the Tribunal found that the only rational explanation for the delay was that Mountstar, acting by Mr Jenner, preferred the interests of the donors to those of the Charity^{[footnote 25]}.

In summary, the non-cooperation with HMRC showed by Mountstar acting through Mr Jenner, over a sustained period, resulted in financial penalties being incurred by the Charity^{[footnote 26]}, with no good explanation. This lack of action and resulting in penalties being levied against the Charity was mismanagement and/or misconduct in the administration of the Charity by the Trustee and its directors in the affairs of the Charity.

2. The Scheme, how it worked and Charity’s participation in a tax avoidance/ gift aid scheme, that was now likely to fail, given HMRC’s public position on the type of avoidance scheme in which the charity was involved and the implications for the Charity if it did fail

As a result of interviews with the directors of Mountstar, the documentary evidence explained and with the assistance of the Interim Manager and records of the Charity held in their custody the Inquiry established the following about the Scheme:

How the Charity funded their involvement in the Scheme

On 30 January 2010, the Charity borrowed £1m from a third party who turned out to be an associate of Mr Jenner. It appears that the funds were in reality supplied by Mr Jenner through an intermediary entity ‘MLJ [i.e. Matthew Leslie Jenner] Loans’ overseas. The loan funds were used to purchase gilts from VL Settlement. The Charity was liable to pay interest of 1% within one month to the lender. The Inquiry understood that no interest was payable on the loan provided the loan was repaid the same day (within 24 hours).

Similar loans from the same lender were made and repaid, on the same day, on different occasions between 30 January 2010 and 28 November 2010, as set out in the table below. As all the loans were repaid on the same day there was no loan interest payable:

Date	£ loan borrowed	£ loan repaid	£ loan interest
30/01/10 30/01/10	1,000,000	1,000,000	0
02/02/10 02/02/10	560,000	560,000	0
07/02/10 07/02/10	820,000	820,000	0
21/02/10 21/02/10	945,000	945,000	0
28/02/10 28/02/10	980,000	980,000	0
20/03/10 20/03/10	965,000	965,000	0
21/06/10 21/06/10	320,000	320,000	0
06/08/10 06/08/10	305,000	305,000	0
25/08/10 25/08/10	305,000	305,000	0
03/10/10 03/10/10	325,000	325,000	0
28/11/10 28/11/10	600,000	600,000	0

The Charity continued to participate in transactions related to the Scheme until November 2010.

Purchase and Sale of Gilts

For each transaction, which was concluded within 24 hours, the Charity used the borrowed money to buy gilts from Romangate, acting as trustee for The VL Settlement (“the vendor”).

The gilts were then transferred from Romangate, acting as bare trustee^{[footnote 27]} for the vendor, to Romangate, acting as bare trustee for the Charity. Whilst the legal ownership remained with Romangate as trustees, the beneficial ownership changed. There was no actual physical transfer of gilts between the parties.

The Charity then sold the gilts to third party UK tax payers through Scott Clark^{[footnote 28]} (“the Intermediary”) for a nominal sum of £5 per £50,000 of gilt value, with a call option to ensure the Charity eventually secured the market value of the gilts through the receipt of the related ‘donation’ or by the return of the securities.

The UK taxpayers were introduced to the Scheme by the Intermediary and HNWTAP. Under the terms of an agreement with the Intermediary, if the Charity’s gift aid claims were successful, the Charity would have been liable to pay success fees of approximately £7.8m^{[footnote 29]} to the Intermediary. As the Charity’s gift aid claims were never paid, the success fees never became due.

The call option the Charity had provided that, on the sale of the gilts to the UK tax payers through the Intermediary, if the Charity did not receive a gift of cash (or other assets) from these buyers equal to at least 100% of the market value at the time of the sold gilts plus a further donation of a nominal sum of £10 per £50,000 of the gilt value, then the sold gilts would be transferred back to the Charity for no consideration.

The donors (or the Charity if it exercised the call option) then sold the gilts back to the VL Settlement.

The Charity’s Participation in Various Rounds

The Inquiry established that between January 2010 and November 2010, the Charity engaged in 10 rounds of the Scheme, constituting approximately 826 transactions and involving over 360 donors, each round consisting of a number of transactions undertaken on the same date, as follows:

Round	Date	Approximate number of transactions	Approximate value of donations received[footnote 30]
1	30 January 2010	250	£74,872,657.60
2	7 February 2010	31	£5,467,920.80
3	21 February 2010	18	£2,580,800.00
4	28 February 2010	24	£3,374,600.00
5	20 March 2010	38	£10,614,628.80
6	21 June 2010	169	£24,965,437.60
7	6/8 August 2010	33	£7,436,000.00
8	25/29 August 2010	57	£5,833,928.00
9	3 October 2010	55	£12,808,000.00
10	28 November 2010	151	£28,450,660.00
Total		826	£176,404,632.80

The one-day circular process of financial instrument dealing occurred in all ten rounds between 30 January and 28 November 2010. The 826 transactions involved over 360 UK taxpayers with over £176 million of gilts being purchased and sold by the Charity with money borrowed from an overseas lender.

This was supposed to represent £176 million of ‘donations’ to the Charity. The only cash which the Charity retained from the Scheme was £155,000 representing the nominal payments made by the Intermediary and the taxpayer donors.

Applications for Tax Benefits and Reliefs

The Commission was told by the Trustee that upon completion of the transactions, the UK taxpayers involved in the Scheme would submit applications to HMRC to apply for higher rate tax relief on the ‘donations’ made. Separately, the Charity would also submit to HMRC claims for gift aid in respect of the same donations.

The Charity made claims for the accounting periods ending March 2010 and 2011, for gift aid and gift aid transitional relief totalling £46,418,271.55.

The notes to the Charity’s 2010 and 2011 annual accounts state the following:

2010: “By undertaking fundraising transactions the Charity generated donations of approximately £98 million and is able to make substantial claims for gift aid and gift aid transactional relief, which after the costs of the transactions necessary to generate those donations, resulted in its generating net incoming resources of £22m (including the gross amount of claims for gift aid and gift aid transitional relief). These claims were submitted to HM Revenue & Customs in August 2011 (i.e. after 31 March 2010).”

2011: “A gift aid claim for donations made during the current accounting period was submitted in August 2011, totalling £27,291,770. This is made up of £24,367,652 gift aid and £2,924,188 gift aid transactional relief. Having considered expert legal advice from Counsel, the Trustee is of the opinion that these claims are more than likely to succeed.”

Scheme Findings Summary

In summary, the Inquiry established as regards the Scheme that:

• Mr Jenner initiated, operated and administered the Scheme, promoting the benefits and costs associated with it through HMWTAP, HMWPT and HNWTS. He made most of the decisions about the Scheme himself
• Mr Jenner was responsible for creating the Charity and in effect controlled and shaped its purpose and operation
• by Mr Jenner resigning as a director of Mountstar in January 2010 at the time the Charity had to make the formal decision making to enter into the Scheme, when the first five first rounds of the Scheme took place, this gave the appearance on paper that he had no influence or involvement in it
• Mr Mehigan was a chartered accountant and was a director of Mountstar when the Scheme was in operation. He, as a director of Mountstar at the critical point after Mr Jenner resigned to enable the Scheme decisions to be made, took the initial decision to take part in the Scheme along with Mr Stones
• Mr Stones was a director of Mountstar and along with Mr Mehigan took the decision to enter into the Scheme. He resigned as a director of Mountstar on 22 April 2013
• an associate of Mr Jenner in Canada, Mr McCulloch, made the initial loan to the Charity which enabled it to participate in the Scheme. It appears that the funding for this loan was supplied by Mr Jenner through an intermediary entity ‘MLJ (i.e. Matthew Leslie Jenner) Loans’
• the Charity used the borrowed money to buy gilts from Romangate, acting as trustee for vendor(s) – one of the VL Settlements. VL is a reference to the first letters of the first and surname of Mr McCulloch’s wife. This person was paid “a few thousand pounds” for their participation^{[footnote 31]}
• Mr Clark was friends/business associates with the three directors of Mountstar. He was an intermediary in the Scheme and was responsible for introducing the fundraiser into the Scheme. Mr Clark was one of the partners of Harry Associates
• the gilts were sold on by Romangate for the Charity to Mr Clark. Mr Clark had contacts with Independent Financial Advisers who introduced taxpayers to the Scheme. Mr Clark then sold the gilts to the taxpayer at a nominal value, making a profit for the Charity of around £150,000 from the difference between the purchase and sale price
• the Charity entered into a “fundraising” agreement with Harry Associates to procure donations from individuals. However, as it has materialised that as all of the donors were sourced by HNWTAP and the Intermediary, it did not need to procure the donations or procure additional services from Harry Associates
• Harry Associates was a specifically created “shell” to receive fees from the Charity to avoid them being seen to be going directly to HNWTAP. In evidence to the Inquiry, Mr Clark explained, Harry Associates “was set up specifically for dealing with administrating or potentially finding clients, for the Cup Trust, if a Gift Aid claim was successful then we would earn our fee from that, or Harry Associates would earn a fee from that”^{[footnote 32] [footnote 33]}
• Romangate’s role was key. The Scheme processes were facilitated by all steps being transacted by, and all parties utilising, the same bare trustee, Romangate, whose bank account was used, and which held legal title to all of the financial instruments (the gilts). By using them, no money or gilts moved; all the steps were transacted using Romangate as bare trustee
• all documents were executed by the parties’ common appointed attorney, HNW Tax Services
• the only money received by the Charity was the nominal payments made by the Intermediary and the donations from the taxpayers. Those sums totalled £155,000 (i.e. under 0.1% of the £176 million turnover)

Implications for the Charity and events leading up to the Charity’s withdrawal of its Gift Aid claims

The Charity’s Gift Aid claims were made to HMRC in September 2011 and February 2012 respectively. The Charity’s gift aid claims were never accepted or paid out by HMRC.

However, at the start of the Inquiry in 2013, those gift aid claims were still live.

The trustee, Mountstar, stated in the Charity’s 2013 annual accounts that the gift aid claim could potentially take in excess of 3 years to resolve. The likelihood of challenge by HMRC was evident not least by its public article ‘Spotlight 9: Gift Aid with no real gift’^{[footnote 34]}. In it HMRC is explicit that it will challenge reliefs claimed in any instances where a tax avoidance scheme is used and will litigate where appropriate. It also indicated that a scheme such as that in which the charity was involved, was highly likely to fail. HMRC’s position on this was confirmed publicly by its Chief Executive at that time, on 7 March 2013. Notwithstanding the Trustee’s belief as noted in the 2011 accounts that the claim was more than likely to succeed, by 2013, it should have been clear to Mountstar that HMRC would strongly resist the payment of the gift aid to the Charity and this would be costly and damaging.

The Charity’s Gift Aid claims made to HMRC in September 2011 and February 2012 respectively were formally rejected by HMRC on 20 December 2013.

Charity trustees have a general duty to protect and act prudently with charity funds and assets. The Charity had previously been acting as if significant sums might be due to the Charity. So on 27 January 2014, acting on professional advice given the millions of pounds involved, the Interim Managers exercised the Charity’s statutory right to apply for HMRC to carry out a review of its decision to reject the claims. The HMRC review was concluded on 10 April 2014, with the result that the decision to reject the gift aid claims was upheld. On 9 May 2014 the Interim Managers submitted a statutory appeal, on behalf of the Charity, against HMRC’s decision to reject the Charity’s gift aid claims. They made these applications primarily because, at that time, the Trustee was still pursuing an appeal against the Tribunal Decision upholding the Commission’s Inquiry and appointment of the Interim Manager, and it was therefore fair and reasonable at the time and in the circumstances, not to take the irreversible step of allowing the Charity’s gift aid claims to fail at that time.

Mountstar subsequently abandoned its appeal against the Tribunal’s decision in August 2014. This enabled the Interim Managers to proceed with deciding whether it was in the Charity’s interests to continue its gift aid appeal or to discontinue it. The Interim Managers took advice from a leading counsel specialising in tax matters, who advised that the Charity’s prospects of success were “very slim indeed, or negligible”. They also noted that the Charity did not have sufficient funds to pursue the gift aid appeals. The Interim Managers were bound, acting prudently and reasonably to notify the Trustee and carefully considered an offer of funding from the Trustee and/or Mr Jenner to meet the costs of continuing with an appeal. To the Commission, given all that had happened, the Trustee’s willingness to meet these not insignificant costs were an indication of the depth and interest the Trustee had in the Scheme and everything connected with its success. The Commission was also aware that there were other interests - individuals and organisations - with a lot vested in the success of the Scheme, not just the Charity.

The Interim Managers ultimately concluded that it was not in the Charity’s best interests to pursue the appeal. However, given the momentous nature of this decision for the Charity - which in theory might receive more than £46 million in gift aid from HMRC, if the appeal were ultimately successful - the Interim Managers asked the Commission to approve this decision or to apply to the High Court for its approval.

The Commission applied to the High Court for its approval of the Interim Managers’ decision, using its power in section 78(5) (b) of the Act. The reason for this was that this enabled the Trustee to attend and present its position to the Court, as well as the Commission and Mountstar. This took place at a hearing at the High Court on 19 January 2016.

The High Court gave judgment on 21 April 2016^{[footnote 35]}. In his judgment, Mr Justice Snowden confirmed that the Commission was justified in bringing the matter to the High Court, and agreed with the Commission that the Interim Managers were entitled to withdraw the Charity’s tax claim, following legal advice that the claim had a negligible chance of succeeding. The Judge agreed that the Interim Managers’ decision to reject Mountstar’s offer of funding further tax litigation was within the range of decisions to which rational charity trustees could properly come, and expressed scepticism as regards the motives behind the offer.

In reaching this judgment, the Court confirmed that, because of their duty to apply charitable assets prudently, charity trustees do not have the freedom to ‘take a punt’ on speculative tax litigation, even if the charity has enough money to pay for it^{[footnote 36]}.

After receiving this approval by the High Court, the Interim Managers proceeded to withdraw the Charity’s Gift Aid appeal on 15 June 2016.

3. Conflicts of interest and their management (in particular in connection with one or more directors of the Trustee) in relation to gift aid claims

Managing conflicts of interest in the Charity

The governing document for the Charity permits the appointment of a single corporate trustee and acknowledges that a corporate trustee may act by any single director. This is set out in Clause 9 of the trust deed. The deed also contains specific provisions relating to conflicts of interest and financial benefits:

• “19. Conflict of interest - A Trustee must absent himself or herself from any discussions of the Trustees in which it is possible that a conflict will arise between his or her duty to act solely in the interests of the Charity and any personal interest (including but not limited to any personal financial interest)…”
• “25. Trustees not to benefit financially from their Trusteeship - Unless expressly authorised in writing in advance by the Commission to do so, no Trustee may buy goods or services from the Charity, or sell goods or services to the Charity or receive remuneration, or receive any other financial benefit from the Charity or from any trading company owned by the Charity.”

The Inquiry also established that the Charity adopted a specific conflicts of interest policy. It required Mountstar, and its officers, to declare any conflicts of interest and to take appropriate action either to obtain authorisation or to remove a conflict.

As confirmed in the Tribunal hearing referred to previously:

“It is Mountstar which owes the Charity fiduciary duties. The directors of Mountstar do not owe the Charity any fiduciary duties but do owe Mountstar fiduciary duties qua directors. If there is a conflict, the conflicted director owes Mountstar a duty to disclose and withdraw or seek authorisation. If he does withdraw and takes no part in the decision‐making process, in Principle Mountstar (by its remaining directors) may make decisions free of the absent Director’s conflict. That type of management of conflicts is recognised by the Commission’s Guidance and also by the Charity’s Conflicts Policy.”^{[footnote 37]}

Mountstar was established under the laws of British Virgin Islands and operating out of Jersey and some of the directors were living in the UK. Questions of corporate governance (for example the fiduciary duties owed by directors to Mountstar and conflicts of interest as they affect those duties) would have been for BVI law, because the trustee is incorporated in the BVI. Although this is not likely to make a material difference in practice in this case because BVI law is similar to English law^{[footnote 38]}.

When trustees of charities make decisions on a charity’s behalf, they act as an ordinary prudent man of business would act, independently of the interests of others. So the proper declaration of interests and management of possible conflicts interests is critical. This is particularly important where a trustee is a sole corporate trustee, where in reality the directors, or a subset of duly authorised directors are making those decisions on the corporate trustee’s behalf.

Where there is a potential conflict, it is not enough to show that a trustee has made a decision which a reasonable body of trustees might take. The trustee must also show that it has not in fact been influenced by the conflict^{[footnote 39]}.

As Mountstar was the sole corporate trustee of the Charity, and the Scheme was complex it was necessary for the Inquiry to look into the relationships between the directors of Mountstar and the various parties involved in the Scheme. This enabled the Inquiry to identify which relationships gave rise to possible conflicts of interest which needed to be properly managed when decisions were made by the Charity and/or the trustee about the Scheme.

Establishing Key Relationships which could give rise to conflicts

The Inquiry established through its enquiries and investigation that the following relevant key relationships existed:

• various individuals involved in the Scheme were known to each other, either as friends or business associates
• Mr Jenner and Mr Mehigan were known to each other. Their professional relationship went back to 2005 and included their joint participation in a number of companies and other entities including NT Tax Adviser Limited which marketed various tax avoidance schemes
• all three directors of Mountstar were all involved as directors and/or company secretary at some point in the company Romangate, which the Charity bought the gilts from as part of the Scheme on behalf of the vendor. Romangate then acted as bare trustee for the Charity
• Mr Jenner and HNWTS had power of attorney for various different parties in the Scheme
• Mr Clark was a friend and/or business associate having worked with the directors of Mountstar. He was an intermediary in the Scheme and was also responsible for introducing the fundraiser into the Scheme
• Mr Jenner in his role in HNWTAP owed obligations to the paying taxpayer clients of HNWTAP where the interests of the individual donor tax payers may not be the same as the Charity
• although Mr Jenner resigned as a director of Mountstar, he was a key figure in the management and success of the Scheme; doing all the administration, covering all expenses and costs and sending the other two directors documents and resolutions to sign

These relationships gave rise to the following conflicts or possible conflicts of interest that needed to be managed when decisions were being made for Mountstar in affairs of the Charity:

• Mr Jenner had a pecuniary financial interest in the Scheme – he admitted he personally profited from the promotion of the Scheme and if the Scheme worked, he was due to receive further significant fees. As HNWTAP were paid up-front fees by the taxpayers and as financial benefits flowed to HNWTAP, then Mr Jenner benefitted as until 17 December 2010, Mr Jenner and HNW Partnership Trust (“HNWPT”) (95% and 5% shares respectively) were the two partners of HNWTAP. Although the exact ownership changed subsequently, for all material purposes and times, the key beneficiary was Mr Jenner
• given their individual involvement as directors, shareholders, partners, and/or beneficiaries in various entities that had a role to play in the Scheme, each of the directors at some point in time
  • could have received or benefitted financially directly or indirectly from the Scheme if the role they had (e.g. paid director role) or body they were involved with as partner, shareholder or beneficiary received fees, payments, profits or continuing business, as a result of the success of the Scheme and its promotion. These fees and benefits had the Scheme been successful would not have been trivial amounts
  • could have received non-financial benefits or advantages including continued enhancement of their individual professional standing through their involvement in promoting a successful Scheme. This might arise either because of professional advantage and standing or by specific involvement in HNWTAP which proposed the Scheme, if it had been successful as those professional businesses and tax advisers would have almost certainly referenced the success of the Scheme to others
• additionally, each director of Mountstar would have had access to information about the Charity that might have been useful to the bodies involved in in different parts of the Scheme, which they were involved in. The same applied vice versa, them holding information about the Scheme or the entities which was of relevance to the Charity and Mountstar when making decisions about the affairs of the Charity and its involvement in the Scheme. This dual positioning would have created a conflict of loyalty
• Mr Jenner may have also been in a further position of conflict of interest connected to his role in HNWTAP, which gave advice to taxpayers and promoters, as the interests of the individual donor tax payers (as clients) may not be the same as the interests of the Charity. Mr Jenner owed a duty of loyalty to the taxpayers as their adviser, but was also a director of Mountstar for the latter rounds and when originally promoting the Scheme to Mountstar
• Mr Jenner was also managing the tax claims with HMRC for the Charity and the taxpayers, whose interests again were not necessarily the same
• Mr Mehigan was at least potentially conflicted by his personal history and/or close professional relationship with Mr Jenner
• as the Tribunal commented, given their past and present involvement in similar schemes, and Mr Jenner’s involvement advising taxpayers on the Scheme, neither Mr Jenner nor Mr Mehigan can bring or be seen to bring an independent approach to the Charity’s involvement in the Scheme

How those conflicts of interested were declared and/or managed in practice

The Inquiry found that:

• Mr Jenner’s partnership and/or directorships of HNWTAP, HNWPT and HNWTS at the time of the rounds were known to Mountstar and those promoting the Scheme
• Mr Stones and Mr Mehigan were aware or should have been aware of the fact that Mr Jenner would as a result be likely to be earning fees from running the Scheme
• Mr Jenner withdrew from considering the initial decision to participate in the Scheme
• Mr Jenner gave evidence in Tribunal that he told Mountstar at the time that he “may (or may not) benefit financially” from the Scheme.
• Mr Jenner failed to make a full and proper declaration of interest to Mountstar, which was in breach of the Charity’s conflicts policy
• Mr Jenner resigned as a director of Mountstar for the first tranche of rounds of the Scheme^{[footnote 40]}. Mr Jenner confirmed when giving evidence during the Tribunal case that he had stood down as a director in November 2010 prior to the trustee’s decision to enter into a further round of the Scheme but that he had not done so consistently. Mr Jenner initially there was no particular reason for not doing so – he just did not think it really made any difference given who the directors of Mountstar as trustee were when decisions on fundraising were made. This indicates even if this was the right thing to do, it made no practical difference in Mr Jenner’s mind to managing the conflict of interests. He later said he did so “I think in terms of managing the conflicts” but that he did not in the second round as “I knew in the second wave of rounds that I wasn’t the partner of HNW to receive the income, so I thought that differentiated me”^{[footnote 41]}

• when it was clear that HMRC was disputing the Scheme, the unmanaged conflict/potential conflicts became even more problematic. Mr Jenner was handling both claims for the Charity and tax payers. As far as the Inquiry could ascertain, these interests were not declared or conflicts managed. There may, for example, have come times when the Charity acting properly should be providing information to the Commission and to HMRC, which it would be in the interests of the private donors to delay or not provide at all
• the capability of the trustee’s directors to manage their conflicts in handling the charity’s gift aid claims was further exacerbated when Mr Jenner informed the Inquiry that Mr Stones had resigned as a director on 22 April 2013, reducing the number of directors to only two

Inquiry findings on Conflicts of Interest

The Commission’s view is that there were clear conflicts of interest that arose or which were likely to arise because of the number and nature of the associations and relationships between one or more directors of the trustee, Mountstar and the tax advisors, partnerships and other organisations which were instrumentally involved in one way or another in the gift aid Scheme.

These conflicts of interest were either not fully identified and/or adequately managed or at all and were interests were likely to compromise objectivity:

• Mr Jenner’s role and interactions with the Charity were inherently conflicted given his involvement with the Scheme – he advised and coordinated donors’ claims and also made all of the decisions in relation to the Charity’s gift aid claims. He controlled or was able to sufficiently influence various entities involved in or advising about the Scheme
• even in the act of leaving him out, which Mr Jenner admitted in evidence was inconsistent and said was not for any particular reason, the relationships which the other two directors had with various parties involved meant that none of the directors could make a decision free from possible conflicts of interest
• such was the nature, depth and breadth of the interests each director had in the Scheme and/or parties closely connected with the Scheme that it meant the conflicts of interest were so inherent in any decisions the three directors were involved in
• the action of simply stepping aside or resigning temporarily to deal with these inherent conflicts, was in the Commission’s view, not sufficient to avoid or properly manage conflicts of interest in the circumstances of this matter. The Commission’s view is that any action to step aside either in isolated decisions, meetings or temporarily as director of the sole Trustee was insufficient. As all the parties were so linked and connected and most had a vested interest in the Charity’s participation in and/or the success of the Scheme it was difficult to see how Mountstar acting by the three directors in any permutation would be able to come to a decision independently or in the best interests of the Charity only
• given the directors’ individual involvement in different third parties connected to and in some cases pivotal to the Scheme, it is difficult to see how any of them could make decisions for the trustee in a way that ensured the Trustee complied with its legal fiduciary duties under charity law
• Mr Jenner by his statements and actions did not identify or perceive any conflicts in the 2010 decision making - he indicated previously that he did not intend to account to The Cup Trust for any benefits he received or might receive from the Scheme
• Mr Stones and Mr Mehigan were close commercial associates of Mr Jenner and so could not be said to have fairly or independently made those decisions. When they had a chance to prove they could manage the interests, they failed to ask the questions about the Scheme for the Charity which an ordinary prudent business person would in similar circumstances have done
• as a result, as the Tribunal Decision noted, the Scheme was not negotiated or operated at arms-length. The commercial promoter of the Scheme was at key points also a director of the Trustee and could have obtained benefits from the Scheme

In summary, the Inquiry’s finding is that these conflicts of interest were serious and substantial. They were on the whole not fully identified nor appreciated.

Given their past and present involvement in similar schemes, and Mr Jenner’s involvement advising taxpayers in the Scheme, Mr Jenner or Mr Mehigan could not bring or be seen to bring an independent approach to matters and decisions connected to the charity’s participation in the Scheme and/or submission of gift aid claim to be made by Mountstar, as trustee. The net effect of all of the conflicts was that they were so inherent and parties so close that they affected the ability of any of the directors to make decisions for Mountstar when acting as decision makers for Mountstar in affairs of the Charity. As a result, these could not be properly managed. The conflicts of interest policy, which required Mountstar, and its officers to declare any conflicts of interest and to take appropriate action either to obtain authorisation or to remove a conflict, could not have been satisfied in this case.

The need to properly deal with conflicts/potential conflicts, was essential to ensuring that the decisions made by the Charity or on its behalf connected with entering into the arrangements connected with the Scheme and with making the claims for gift aid to HMRC were dealt with only in the best interests of the charity.

Given the knowledge they had of the relationships and by their actions, the failure to sufficiently identify and/or adequately manage conflicts in this case was mismanagement in the administration of the Charity.

4. The extent to which there were payments and/or benefits to those involved with the Charity and/or in the Scheme where due to the fiduciary relationships they were under a duty to account for to the Charity

The Inquiry established that:

• a number of key parties related to the Scheme had accrued in excess of £2 million in fees as a result of their participation in the Scheme
• Mr Mehigan and Mr Stones knew that both Mr Jenner and Mr Clark would personally benefit from the Charity’s participation in the Scheme

In respect of Mr Jenner

He received the following payments and/or benefits:

• evidence from Mr Jenner in the Tribunal confirmed that HNWTAP were paid up-front fees of £704,000 by the taxpayers and it was entitled to contingent fees of £3.52 million if the Scheme succeeded. The fees received were distributed to Mr Jenner by HNWTAP
• in response to a legal direction under section 47 of the Act during the Inquiry, Mr Jenner provided the Inquiry with updated figures. Mr Jenner told the Commission that he received £1,091,679 from the pre-April 2010 rounds 1-5 (22 January to 3 June 2010) and a further £950,120 in fees from later rounds 6-10 (21 June to 28 November 2010)
• Mr Jenner therefore received in excess of £2 million in up-front fees from his taxpayer clients for his work on the Scheme
• Mr Jenner resigned as director of Mountstar for the period covering each of these rounds and payments
• if the Scheme succeeded, the taxpayers would have been required to pay further substantial fees to HNWTAP, which would in turn have benefitted Mr Jenner

In respect of Mr Mehigan

The Inquiry found no documentary evidence to suggest that he had received any direct financial reward from the Scheme by way of payment or fees.

In respect of Mr Stones

The Inquiry established Mr Stones received a one-off payment of £1,000 honorarium to be a director of Mountstar. The Inquiry found no other evidence to suggest that he benefitted directly from the Scheme financially by way of payment or fees.

In respect of HNWTAP

When complying with a legal direction under section 47 of the Act during the Inquiry, Mr Jenner disclosed in a statement to the Inquiry received on 2 March 2015 that HNWTAP has received over £2 million in the form of introductory commissions and upfront tax advice fees.

In respect of Mr Clark

The Inquiry established that he had received a total of £328,423 by way of fees and commissions connected to the Scheme:

• rounds 1 to 5 of the scheme - £172,634
• rounds 6 to 10 of the scheme - £155,789

In respect of Mr McCulloch and other key individuals

The Inquiry established that for rounds 6 to 10 of the Scheme, one individual was a beneficiaries of a sub-trust that received upfront fees. The Inquiry could not establish how much personal financial benefit, if any, that person personally received through that sub-trust.

The Inquiry ascertained that Mr McCulloch was entitled to 1% per annum compound interest on the loan amount. However, he received no payment in interest on the loan to the Charity or other benefit^{[footnote 42]}.

The Inquiry ascertained that his spouse, the beneficial owner of the vendor involved in the Scheme, received a total of £4,135.

The Fundraiser, Harry Associates

Under the fundraising agreement the Charity entered into with Harry Associates the Charity would have paid fees if the Scheme succeeded, which would have amounted to £6.3 million^{[footnote 43]}. The fees were ostensibly payable to the Fundraiser for procuring donations from individuals but the Inquiry established that the Fundraiser did not in fact have to do any fundraising or other activities whatsoever to earn its fees because all of the donors were sourced by HNWTAP.

As the Fundraiser would only have benefitted if the Scheme succeeded, which it did not, there were no fees paid.

Mountstar

Mountstar owed a duty to act in the interests of the Charity only. Mountstar as trustee of the Charity must not make a profit from its activities, must act in good faith, must not place itself in a position of conflict and may not act for its own benefit, or for the benefit of a third party.

The notes to the Charity’s accounts for 2010 state that “During the period, no Trustees received any remuneration. During the period, no Trustees received any benefits in kind. During the period, no Trustees received any reimbursement of expenses.”

The Inquiry has seen no documentary or other evidence that Mountstar as a company profited by way of the Scheme or the Charity’s participation in it. The Inquiry did not identify fees to Mountstar that would amount to unauthorised trustee benefit.

Others

There has been a limit to what steps the Inquiry could make to identify what other bodies or persons might significantly benefit from the Scheme. In the application to the High Court for directions about the Interim Manager’s decision in evidence on behalf of Mountstar, Mr Mehigan, giving evidence, made no mention of the interests of other persons who would claim to be entitled to share in any recovery if the Charity were successful in its gift aid claims.

The solicitors for Mountstar refused to answer in correspondence the question whether there have been any discussions between Mr Mehigan and Mr Jenner concerning the affairs of the Charity since Mr. Jenner’s resignation.^{[footnote 44]}

5. The extent to which the Trustee discharged its duties and responsibilities as charity trustee

Before assessing whether and to what extent the trustee Mountstar discharged its legal duties, it was necessary to consider the Trustee’s decision making and that of its directors when making decisions in the affairs of the Charity.

Decision-making by the directors of the Trustee, Mountstar

The charity has no staff and no subsidiaries. Mountstar acted by “the relevant committee” of its directors in the specific role as trustee for the Charity. The Trustee operated by having two ordinary meetings a year.

The Inquiry established in evidence from Mr Mehigan that:

• he knew a charity needed to be set up and created to use in the Scheme and knew “it’s crucial that that was done”, and “it’s one of the things, ……on my list of – menu of items for [Mr Jenner]…to address, and that was to get it registered as a UK or English law charity” ^{[footnote 45]}

• he said he did not know Mr McCulloch, who loaned the money to the Charity, instead relying on Mr Jenner’s recommendation and due diligence regarding him and the Charity’s loan from him to fund participation in the Scheme
• he did realise that, for the fundraising “there was going to be a very substantial fee, if successful, going to Harry Associates, and I assumed that there were quite substantial fees going to the tax entities that [Mr Jenner] had as well, because otherwise he wouldn’t be doing the scheme.”^{[footnote 46]}

• the directors had been conflicted when making decisions about the Charity’s participation in the Scheme but he was of the view that those conflicts had been managed by Mr Jenner resigning
• he never met the auditors of the Charity but knew the firm was known to Mr Jenner
• he did take into consideration reputational risk for the Charity in entering into the Scheme – “I think that we just acknowledged that one can get bad publicity”^{[footnote 47]}

• Mr Mehigan stated in his witness statement in August 2015 in directions in the Interim Manager proceedings “that the Charity was established as part of a tax avoidance scheme and that those who established the scheme (mainly entities related to Mr. Jenner) intended to profit from it through the marketing of the scheme to potential participants.”

The Inquiry established in evidence from Mr Stones that:

• he did not carry out or ask for any due diligence regarding his loan to the Charity
• he had never seen any of Mountstar’s books and records
• he said he did not know who the Charity’s auditors were
• in the absence of Mr Jenner there were no trustee meetings or meetings of the directors of Mountstar
• there was no documented evidence of their deliberations when they did meet
• he and Mr Mehigan had never physically met
• he said he did not know the organisation(s) which was/were operating the Scheme
• he did not take advice or ask for advice about the Charity entering into the Scheme
• he was relying on the advice provided by Mr Jenner that was written for the taxpayers entering into the Scheme
• he had very few documents relating to the Charity
• he had given no consideration as a director of Mountstar to the issues arising from Mr Jenner and Mr Clark earning considerable sums of money from the Scheme

The Inquiry established in evidence from Mr Jenner that:

• “The Cup Trust, when it was originally established, was meant to just be my vehicle to use some of the contacts I had, because I did have some quite rich clients, and I knew some corporates, and try and take little donations from each of them to build them into more substantive grants so people – and I guess people would see things on the news where a child needs 50,000 for a medical operation in the US or something like that” ^{[footnote 48]}

• “The Cup Trust from inception to December 2009, I don’t think particularly did anything. It was only after the proposal was put to [Mr Mehigan] that things started to happen then”
• he said the Charity was the last on the list of charities available in January 2010 to participate in the Scheme

During the course of the Inquiry’s investigation into the affairs of the Charity, it identified additional mismanagement and/or misconduct by the Trustee in the administration of the Charity, including discovery of a number of blank, but signed, cheques by the Interim Managers. The Inquiry formed the view that the interviews and further information and documents obtained after the Tribunal’s decision in 2013 supported the Tribunal’s initial confirmation of evidence of misconduct and/or mismanagement.

The Inquiry established that the decision making of Mountstar and its directors when taking decisions in the affairs of the Charity was poor. The directors did not act prudently or proactively enough to identify and assess the implications, benefits and risks for the Charity in entering the Scheme.

The directors individually and collectively failed to take independent professional advice for the Charity, instead relying on that provided by the promoter of the Scheme obtained for the tax payers. That advice was never going to be independent or suitable for the Charity and its interests as a charity that has to comply with charity law. The Tribunal already concluded that the directors, and so Mountstar, failed to make any meaningful enquiries that an ordinary and prudent man of business would have made when agreeing that the Charity should become involved in the Scheme.

The Inquiry obtained the proposal letter of 13 January 2010 which said that whilst it may be considered there is a reputational risk attached “I trust given that the Charity has no public profile you can accept (after due consideration) that any such risk is more than outweighed in the funds that would be raised for charitable purposes.”^{[footnote 49]} The Inquiry’s view was that Mountstar entered into fundraising agreements (and in doing so participated in the Scheme) on behalf of the Charity which it knew or ought to have known that they did not reflect, or were designed to conceal, the true nature of arrangements, the true identities of the participants.

Its directors, and so Mountstar, also failed to make proper enquiries and adequately review the terms and conditions of the Scheme. As a result the Charity entered into a Scheme where the third party it was asked to regard as a professional fundraiser, had no fundraising experience but was simply collecting contingency fees from the Charity to pay financial intermediaries.

When the Scheme started up again in June 2010, Mountstar failed to make enquiries and generally review the terms and conditions of the Scheme and to require further and proper declarations of interest from Mr Jenner as to what the conflicts were which had caused him to step aside; and to consider and decide whether to take independent advice as to the renegotiating of the fees and then whether or not to negotiate them.

The Tribunal was of the view that an ordinary prudent man of business would have been concerned

“that the charitable status of the Charity was being (mis)used to promote the private interests of the settlor … and his clients … and that the Charity would become embroiled in protracted litigation with HMRC and the Commission … during which the substance behind the legal form of the Harry Associates fundraising agreement would have to be explained from which it follows that the potential for adverse publicity would prevent the Charity from establishing the sort of reputation which any ordinary prudent charity trustee would want to attract.”^{[footnote 50]}

Mountstar, acting by its directors, knew or ought to have known that the Scheme was an artificial arrangement, created to give the impression all parties involved in the Scheme were separate and independent of each other when they were not. Mountstar knew or ought to have known the Scheme was designed to obtain relief in a way that was not as intended, namely to stimulate genuine charitable giving.

Mountstar, acting by its directors, knew or ought to have known at the time it entered into the arrangement that the Charity was exposed to being (mis)used to promote private interests.

The Inquiry found that Mountstar’s decision making was significantly influenced by Mr Jenner and to a lesser degree Mr Mehigan, neither of whom acted independently in the best interests of the Charity. At the time the Scheme was entered into Mountstar did not ask the questions that a reasonably prudent businessman would.

When Mr Jenner was involved, in the Commission’s view, Mr Mehigan and Mr Stones became disengaged and appeared to just allow Mr Jenner to “get on with it”^{[footnote 51]} without any or any proper consideration of the issues then confronting the Charity. Mountstar had effectively placed itself into a position whereby it was relying on third parties and unable to act properly as trustee of the Charity. This was particularly serious as it had chosen to act in practice mainly, directly or indirectly, by Mr Jenner, who was conflicted at various material points, during the ten rounds of the scheme in 2010 and afterwards, up until the Commission appointed the Interim Managers. It was for example Mr Jenner that made all of the decisions about how to deal with HMRC’s requests, not the other two directors. All of the correspondence was with him. He was the person dealing with HMRC on behalf of Mountstar. The Interim Manager found that many of the papers relating to the donors were mixed up with the Charity’s papers.

The individual director’s decision making and Mountstar’s collective decision-making was inadequate and fell below standards expected of competent and prudent trustees. The directors and so Mountstar’s lack of sufficient control and poor decision making in the affairs of the Charity and its management and administration amounted to mismanagement.

Trustee Duties

As a result of its poor decision making, Mountstar failed to act with reasonable care and skill, and acted in breach of its legal duties in relation to the Charity when it approved the Scheme. Mountstar did not demonstrate that it acted prudently and in the best interests of the Charity entering into the Scheme.

Mountstar failed to act with reasonable care and skill, and acted in breach of its fiduciary duty when it dealt with HMRC and the Commission in relation to the Scheme.

It is also the Inquiry’s view that Mountstar’s directors failed to act with reasonable care and skill, and acted in breach of their fiduciary duties to Mountstar, when they approved the Scheme and dealt with HMRC and the Commission.

As concluded above in section (3), Mountstar itself and the directors of Mountstar taking the decisions for and on behalf of Mountstar were in the Inquiry’s view inherently conflicted in the decisions to be made about the Scheme due to the roles and relationships of the directors. As the sole and seriously conflicted trustee it was impossible for it to act independently in the best interests of the Charity. These conflicts of interest were serious and substantial. Conflicts of interest were not properly identified or appreciated nor adequately managed. Where there is a potential conflict, it is not enough to show that the Trustee has made a decision which a reasonable body of trustees might take. A trustee must also show that it has not in fact been influenced by the conflict. In this Commission’s view this was not demonstrated.

The directors acting for and on behalf of Mountstar knew or ought to have known that Mr Jenner was profiting or would be profiting significantly from the Scheme. Mr Stones told the Inquiry that he did not know if Mr Jenner benefited as promoter. He said he knew of the potential benefit to Mr Jenner but thought this to be contingent on the success of the gift aid claims. Mr Mehigan, in evidence said he “assumed there were quite substantial fees going to the tax entities that [Mr Jenner] had … because otherwise he wouldn’t be doing the Scheme”. He said that he, and Mr Stones, would have been surprised if Mr Jenner had bothered to disclose his fees “because it’s obvious he was getting paid”^{[footnote 52]}.

Mountstar entered into a Scheme and made decisions to continue a second time and in doing so did not discharge its duties and responsibilities as trustee or in managing the associated affairs of the Charity. Mountstar, as the sole corporate trustee of the Charity at the time of the misconduct and/or mismanagement, was responsible for the misconduct and/or mismanagement, knew of the misconduct and/or mismanagement and failed to take any reasonable step to oppose it, or contributed to or facilitated the misconduct and/or mismanagement.

Where a body corporate is the sole trustee of a charity, the individual persons who, from time to time, are responsible for the management of the corporate body are not themselves trustees of the charity. The duties, responsibilities and liabilities of trusteeship lie with the corporate body. [Nevertheless] its directors or individual officers may be held liable to the corporate body for any liability it has incurred in respect of the charity. Mountstar’s directors as individuals do not owe direct duties to the Charity and so the Commission cannot, as Mountstar is a BVI company, deal directly with those breaches. The Commission can and has taken that into account as evidence in considering the fitness to act as charity trustees of each of the individual directors of Mountstar.

Other Findings

The Charity had about £20,000 in cash assets at the date of appointment of the Interim Manager and owned a domain name and website and took custody of 12 boxes of documents. A law firm acting for the Trustee previously, declined to provide documents to the Interim Managers on the basis that it had been acting for the Trustee in a personal capacity, not in connection with the Charity.

Conclusions

The Inquiry concluded that:

Mountstar as trustee of the Charity, acting through its directors, did not properly or fully discharge their legal duties responsibilities as trustee in their decision making entering into and managing the Charity’s participation in the tax avoidance Scheme and oversight of the Charity’s affairs.

Whilst Mountstar did not profit from the participation in the Scheme itself, one of the directors of Mountstar, the person which founded the Charity and promoted the Scheme, Mr Jenner, profited from at least £2m in fees and/or commission. He and others would have profited further, and the Charity been liable to pay substantive fees, had the gift aid claims and the Scheme succeeded.

Most of the key players behind the Scheme or playing a significant part in its key transactions were connected to and/or knew Mr Jenner. For the Charity, those relationships gave rise to significant conflicts of interests that when it came to Mountstar acting through the directors making decisions about the affairs of the Charity entering into the Scheme, it meant the conflicts were so inherent they could not be properly managed under charity law. The various conflicts of interest were numerous, serious and substantial. Those conflicts and their impact were on the whole not fully identified nor appreciated when Mountstar and its directors were taking decisions about the Scheme and the affairs of Charity.

The net effect of the conflicts of interest was that they were so inherent and the parties so close they affected the ability of the directors to make decisions for Mountstar when acting as decision makers for Mountstar in affairs of the Charity to such an extent that these conflicts could not be properly managed. It is difficult to see how any of the directors of Mountstar could have made decisions for the Trustee in a way that ensured that Mountstar, as the trustee, complied with its legal fiduciary duties under charity law.

Mountstar, acting by its directors, knew or ought to have known that the Scheme was an artificial arrangement, created to give the impression all parties involved in the Scheme were separate and independent of each other when they were not. Mountstar knew or ought to have known the Scheme was designed to obtain relief in a way that was not as intended, namely to stimulate genuine charitable giving.

There was clear misconduct and mismanagement by Mountstar in the administration of the affairs of the Charity, particularly connected to entering into and managing the Charity’s participation in the tax avoidance Scheme. Mountstar, as the sole corporate trustee of the Charity, was responsible for misconduct and/or mismanagement in the administration of the charity, including:

• failing to properly identify and adequately manage conflicts of interests and comply with the Charity’s conflicts of interest of policy, which required Mountstar, and its officers, to declare any conflicts of interest and to take appropriate action either to obtain authorisation or to remove a conflict

• poor decision making in entering into the Scheme, including:

  • failure to ask questions and take steps a reasonable ordinary prudent business person would about the Scheme and the Charity’s participation in it
  • failure to take, or consider taking, independent professional advice for the Charity about the merits, fees and risks with participating in the Scheme
  • failure to equip itself with sufficient information to properly consider whether to enter into the Scheme

The individual directors’ decision making, and so Mountstar’s collective decision-making, was inadequate and fell below standards expected of competent and prudent trustees. As a result of its poor decision making, Mountstar failed to act with reasonable care and skill, and acted in breach of its fiduciary duties in relation to the Charity when it approved the Scheme. Mountstar did not demonstrate that it acted in the best interests of the Charity entering into the Scheme.

• poor financial management including the practice of Mountstar signing blank cheques to be drawn on the Charity’s account
• the non-cooperation and lack of action with HMRC showed by Mountstar acting through Mr Jenner, over a sustained period, resulting in financial penalties being incurred by the Charity, with no good explanation.

Mountstar, as the sole corporate trustee of the Charity at the time of the misconduct and mismanagement, was responsible for it, knew of the misconduct or mismanagement and failed to take any reasonable steps to oppose it, or contributed to or facilitated the misconduct or mismanagement. Mountstar, acting by its directors at the time, by its decision making contributed to or facilitated the misconduct and/or mismanagement.

As Mountstar acted by the agency of its directors, they bear the collective responsibility for the Charity’s poor governance and decisions and actions taken by Mountstar as the corporate trustee of the charity. They therefore facilitated and were responsible for the misconduct and/or mismanagement by Mountstar in the administration of the charity, knew of the misconduct and/or mismanagement and failed to take any reasonable step to oppose it, or contributed to or facilitated the misconduct and/or mismanagement.

Using powers introduced by the Charities Act 2016, the Commission acted in 2017 to disqualify the company Mountstar (PTC) Limited, from being a charity trustee for the maximum period of 15 years. The Commission also acted to disqualify the three directors of Mountstar because they were directors of the corporate trustee responsible for mismanagement under those new powers, from being a charity trustee, also for the maximum period of 15 years.

The Charity has not lost money from participation in the Scheme, but the Scheme, and the Charity’s participation in it, has greatly damaged public trust and confidence in both the Charity, necessitating its closure, and in charities more widely. The effect of this matter has been to undermine public confidence in the lawful and fair operation of gift aid and to give the impression that a charity can be used as a vehicle for aggressive tax avoidance. This is of great concern to the Commission particularly as there is a risk of potential loss of other tax reliefs to the sector as a result of, or as a necessary by-product of, action to stop or close such schemes.

As the Commission’s subsequent guidance on Charity Tax Reliefs [link] says the Commission expects charities to fulfil their obligations and take every reasonable step to ensure that the charity is not a party to, and does not enter into, any tax planning arrangements that are imprudent or could bring the charity or the charitable sector into disrepute. The principal aim of tax avoidance schemes is usually to confer advantage on private businesses or individuals with any benefit to a charity being a by-product of the scheme rather than its principal aim. Apart from being subject to a challenge from HMRC, such arrangements are not consistent with trustees’ duties to act prudently and to further the charity’s purposes in its best interests for the public benefit.

Charity removal

On 25 May 2017 the Inquiry received formal notification from the Interim Managers that the Charity’s affairs had been concluded and it had been wound up, following transfer of its remaining funds to another charity, selected by the Interim Managers, which the Interim Managers agreed with them they could remain anonymous. The Charity was removed from the Register of Charities on 26 May 2017^{[footnote 53]} and the Interim Managers were discharged on the same day^{[footnote 54]}.

Action Taken by the Commission to disqualify the Trustee and its directors

The 2016 Act introduced new powers enabling the Commission to consider disqualifying an individual from holding the position of trustee where certain tests are met.

The Trustee

On 3 May 2017, the Commission made an order under section 181A of the Charities (Protection and Social Investment) Act 2016 to disqualify the company, Mountstar (PTC) Limited (Mountstar), from being a charity trustee for a period of 15 years. The order was made by the Commission as it was satisfied:

• that Mountstar, as trustee, was responsible for misconduct and / or mismanagement in the administration of the charity
• that Mountstar, as trustee, was unfit to be a charity trustee; and
• that it was desirable to make the disqualification order in the public interest, so as to protect public trust and confidence in charities

Given the level of Mountstar’s misconduct and/or mismanagement, the extent of its unfitness, and the nature, seriousness and impact of, and the adverse public reaction to, its conduct, the reputation of the Charity had been tarnished and public trust and confidence in charities affected. The Commission concluded that this would continue if Mountstar were to be permitted to resume its activities as corporate trustee of the Charity.

The order became effective on 14 June 2017 and has the effect of disqualifying Mountstar from being a charity trustee or trustee for a charity in respect of any charity established in England and Wales for a period of 15 years. The order also disqualifies Mountstar from holding any office or employment with senior management functions in any such charity for the same period.

The Directors

Mountstar acted by the agency of its directors who bear individual and collective responsibility for its governance and its decisions, actions and inactions as corporate trustee of the Charity. The Inquiry considered and made separate decisions to disqualify each of the three directors of Mountstar from being charity trustees or trustees for a charity.

On 18 July 2017, the Commission made orders under section 181A of the Act to disqualify Mr Jenner and also Mr Stones, as two of the directors of Mountstar, from acting as charity trustees or trustees for a charity for a period of 15 years. The orders came into effect on 30 August 2017.

The Commission issued a disqualification order under section 181A of the Act to the third director of Mountstar, Mr Mehigan on 24 August 2017 after consideration of representations against his proposed disqualification. As Mr Mehigan did not appeal the order to the Tribunal, the order disqualifying him came into effect on 5 October 2017.

Conduct of the Inquiry

Exercise of temporary and protective powers

As explained above, the Commission appointed an Interim Manager to the Charity on 26 April 2013, appointed an additional Interim Manager on 18 February 2014, and discharged them both on 26 May 2017 following the conclusion of their tasks.

The specific functions covered by the order included:

• liaising with HMRC regarding its ongoing enquiry into the charity’s gift aid claim
• examining the efficacy of the Trustee in its duty to properly account for and safeguard exclusively for the Charity any fees that may have been earned in relation to the Scheme
• shaping the future operations of the charity overall

Further details are set out in annex 3.

On the same day, 26th April 2013, the Inquiry made an order under section 76(3) (d) Charities Act 2011, directing the Trustee not to part with any property it held on behalf of the charity without the prior written approval of the Commission, including but not restricted to, the charity’s books and records and any property in its bank accounts^{[footnote 55]}. This is sometimes referred to as a freezing order. The Inquiry took the decision to delay informing the Trustee that it had opened an Inquiry until immediately after the orders were made, to minimise the potential for risk of obstruction by the Trustee, to charity assets, or of destruction of charity records.

Following the Tribunal hearing and its decision the Inquiry decided to concentrate its Inquiry on the following areas, to:

• consolidate all available information at its disposal, ascertain if there were any information/knowledge gaps and consider whether it needed to extend or clarify its scope to cover potential enquiries being considered
• undertake a forensic accounting exercise, where necessary employing the services of a financial expert^{[footnote 56]} to help identify fees, commissions, benefits and links and trace the flow of funds

• establish any duties to account for benefits received
• consider and determine whether the Trustee acting through its directors had breached the fiduciary duties to the Trustee
• in the event the Inquiry established that the Trustee or any of its directors had committed or facilitated acts of mismanagement and/or misconduct to consider what regulatory action should be taken
• in March 2014, the Inquiry used the Commission’s powers of direction under section 47 of the Act to require the Interim Manager to provide the Commission access to the Charity’s records, including those relating to its participation in the Scheme between January and December 2010
• the Inquiry used its direction powers in April, May and June 2014, to require key individuals involved in the Scheme, including Mr Jenner, Mr Mehigan, Mr Stones, and Mr Clark to attend the Commission’s offices to provide evidence under interviews. The Inquiry, having established through the interviews that it needed further information from the individuals, obtained that information by further exercising further direction powers, in December 2014 and January 2015
• the Inquiry information was aimed at assisting the Inquiry gain a greater understanding of the various parties’ participation in the Scheme and establish the extent to which there had been mismanagement and/or misconduct, unmanaged conflicts of interest/loyalty and/or benefits received for which there may be a duty to account

Other action taken

The Commission used a number of regulatory powers, under the following sections of the Act:

• 76(3)(g), appointing an Interim Manager on 26 April 2013 and then under 337(6), varying the order to authorise a second Interim Manager, and so joint appointment on 18 February 2014
• 76(3)(d), a freezing order, directing the Trustee not to part with the charity’s property without the Commission’s prior written consent
• S76(6) and 337(6), discharging the freezing order, once the Interim Manager assumed control of the charity’s property
• 47(2)(a) and (b), issuing a direction to the Interim Manager to provide the Commission with the Charity’s records
• 47(2)(a) and (b), directing various individuals involved in the Scheme to provide the Commission with information and records
• 47(2)(c), directing individuals involved in the Scheme to attend the Commission’s offices to give evidence about their involvement in the Scheme
• 76(3)(g) and 337(6), discharging the Interim Managers
• 181A, disqualifying the Trustee and its directors from being charity trustees or trustees for a charity
• 34(1)(b), removing the charity from the Register of Charities

Liaison with other agencies

• the Commission liaised with HMRC and shared information under the statutory gateways. The Commission has a statutory legal gateway to enable it to give and receive information from and to other public authorities, including, specifically, HMRC^{[footnote 57]}

• most of the Commission’s one to one engagement with HMRC on individual cases cannot be disclosed. However, HMRC gave consent on 11th April 2010 for the fact that it had engaged with the Commission over this Charity and for details of the exchanges as regards gift aid claims to be disclosed to the Charity
• one of the directors, Mr Mehigan, was subsequently subject to an investigation by the Financial Reporting Council (“FRC”)^{[footnote 58]}

Possible Restitution Action

The Commission’s policy approach to restitution is set out in its published policy. In summary this policy explains that where trustees are unable or unwilling to take action, the amounts involved are significant and the breach of trust sufficiently serious, the Commission can use powers of intervention under s114 of the Act to bring proceedings in the public interest, providing the Attorney General consents, to secure the recovery of lost funds. The policy makes clear in considering whether or not to take action in the public interest relevant factors include the strength of the legal claim and likelihood of repayment.

That policy was applied in this case and the Commission considered and took counsel’s advice on possible legal claims to take against Mountstar and/or its directors to recover funds accrued as a result of the Charity’s participation in the Scheme.

Any legal claims for restitution would have been for claims for the trustee, Mountstar and/or its individual directors, to account for profits they may have received as a result of a breach of duty, rather than a claim to compensate the Charity for losses it has suffered, as it did not suffer losses.

Mountstar had acted in breach of trust due to the conflicts of interests not being properly managed. This breach by Mountstar arose due to the improper actions and inactions of its directors when acting as authorised officers and taking decisions as the corporate trustee. However, Mountstar as a corporate trustee had not made any profit directly from the involvement in the Scheme and there was no evidence that it had any substantial assets with which it could satisfy a judgment in any event. The Commission concluded any possible claims against Mountstar as corporate trustee were not viable.

The Commission also considered the position as regards the individual directors of Mountstar for a duty to account for profits. The Commission identified that it was Mr Jenner who received the vast majority of the profit identified. Mr Jenner failed to avoid and/or manage adequately conflicts of interest and made profits as a result. However, any duty he owed to account for that profit was to Mountstar^{[footnote 59]}. Events were also overtaken as on 11 March 2015 Mr Jenner was declared bankrupt.

Mr Mehigan and Mr Stones received very little directly from the Scheme. Mr Mehigan and Mr Stones in the Inquiry’s view did not deal adequately with conflicts of interest. There was no evidence of any profits made by Mr Mehigan and only a small honorarium paid for Mr Stones. Therefore any substantial claim would have been for losses suffered by the Charity from their decision making, which was difficult to prove and likely to be limited to losses arising from inadequate negotiation of fees.

In all cases therefore, the Commission could not establish a sufficiently certain claim in all the circumstances with good prospects of making a substantial recovery, as justified in the public interest.
Relevant considerations taken into account by the Commission were:

• for the claim to be successful it would have had to establish Mr Jenner owed a duty to the Charity itself or that the court would be prepared to pierce what is called “the corporate veil” which protects all incorporated entities to find personal liability in its directors for the failings of the trustee, Mountstar
• the strength and nature of the claims
• the bankruptcy of Mr Jenner and the details of assets, receipts and payments resulting as part of formal bankruptcy process
• the limited set of fees and payments that were actually made, due to the failure of the Scheme
• evidential limitations and complexities due to the different legal jurisdictions, including dealing with a company and corporate governance issues subject to the law of another jurisdiction, BVI
• the results of asset tracing reports commissioned by the Commission

The decision in this case does not mean the Commission would not bring a similar claim in other circumstances. However, the Inquiry concluded that disqualification of the Trustee and its directors as charity trustees for all charities for the maximum period allowed, should be pursued.

The length of Inquiry

This was an extraordinarily long Inquiry due to the complexity of issues connected with the tax avoidance scheme the Charity entered into, the number of people and organisations connected with it, and as the Inquiry had to be put on hold and was prolonged due to various legal proceedings that had to take place. Substantive matters concluded in late 2017. The publication of the final report has been delayed due to the diversion of Commission resource to deal with safeguarding matters in 2018.

This has been a particularly lengthy Inquiry for a number of reasons:

• the Scheme was complex and documents related to it were large in number and needed to be obtained and carefully assessed. There was a careful investigation of the complex financial relationships and transactions involving a number of parties which necessitated collecting, assessing and verifying information about each of them and their roles
• the need to appoint and supervise the affairs of an Interim Manager
• considering formal challenges and representations made by the Trustee and its directors, in response to the Commission’s decision to open an Inquiry and appoint an Interim Manager. These were dealt with under the Commission’s Decision Review processes
• the Trustee pursued appeals in the Tribunals in 2013 and 2014, challenging the opening of the Inquiry and the use of the Commission’s power to appoint the Interim Manager. Mountstar made an application on 14 November 2013 to the Tribunal for permission to appeal the Tribunal judgment in the Commission’s favour on the appointment of the Interim Manager. The Trustee was granted limited permission by the Upper Tribunal in February 2014 to appeal the Tribunal’s judgment but subsequently withdrew the appeal in August 2014
• the formal application to the High Court in 2015 for approval of the Interim Managers’ decision to withdraw the Charity’s gift aid claims, which was given and implemented in 2016. The Trustee challenged the Commission’s application to the High Court pursuant to section 78(5)(b) of the Act, which sought direction from the court sanctioning a decision of the Interim Managers to discontinue the Charity’s appeal to the First Tier Tax Tribunal against HMRC’s rejection of the Gift Aid claims. Judgment was delivered on 21 April 2016 in favour of the Commission’s application; in so doing, Mr Justice Snowden cast doubt as to the motivation of Mountstar (acting by Mr Mehigan) and agreed that it was reasonable in the circumstances for the Interim Managers to be concerned that there was a continuing desire by Mr Jenner to exert indirect influence through Mountstar over the affairs of the charity
• proper and full consideration of possible restitution and regulatory actions against the Trustee and/or its directors
• time taken for withdrawing the gift aid claims (which had had to be stayed pending the Tribunal and High Court proceedings) and the orderly wind up of the Charity and distribution of the assets

Issues for the wider sector

Charities, tax benefits and reliefs

As a result of their legal status, charities enjoy certain tax benefits. Whether a charity or its donors are lawfully able to claim tax relief and the issue of whether a tax scheme is legitimate or not is determined by HMRC^{[footnote 60]}. The Commission’s role and remit is to determine whether an organisation is a charity under the law and to ensure trustees comply with their legal obligations in managing charities. The Commission has a statutory function to identify and investigate abuse and mismanagement in charities and, where appropriate, take protective or remedial action.

Charity trustees are under a fiduciary duty to act exclusively in the best interests of their charity in the management of its affairs and the application of its property to further the charity’s purposes for the public benefit. In so doing, they must exercise reasonable care and skill and act to the standard of an ordinary prudent business person in the conduct of their own affairs. This duty makes it appropriate for them to engage in reasonable and prudent tax planning and to take advantage of available statutory tax reliefs relating to charities where these will assist the work of the charity, encourage genuine donations and coincide with the purposes for which these reliefs were created.

Trustee duties

Trustees have an overriding duty to act in the interests of the charity. In doing so, they must act prudently, balancing issues of resourcing and potential risks to the charity. Trustees’ duty of care requires that they exercise reasonable care and skill in carrying out their responsibilities.

It is the fundamental duty of all charity trustees to protect the property of their charity and to secure its application for the objects of the charity. When a charity considers entering into unusual activities, the Commission expects the trustees to carefully consider all the risks, and take steps to ensure they can be satisfied that entering into these arrangements is in the best interests of the charity and the charity’s position is fully protected.

Where a charity becomes involved in a scheme or proposal where there are either significant tax benefits and/or other forms of personal benefits to others, trustees should be very wary about the charity’s involvement. Trustees must take all appropriate steps to protect not just its tangible charitable assets, but also the charity’s reputation.

Corporate Trustees

Where a company or another corporate body acts as trustee of a charity, it is known as a corporate trustee. It is the company or corporate body itself that is the charity trustee, with responsibility for the general management and control of the administration of the charity. The corporate trustee then, in turn has, in the case of a company, directors, who have the general control and management of the corporate body. The corporate trustee acts by the agency of its directors and officers who owe fiduciary duties and duties of care to the corporation. The fiduciary duties owed by the directors to the company under company law effectively mirror and are similar to the duties of a charity trustee to a charity. If there are failings of duties on the part of the trustee, individual officers of the corporate trustee may be held liable to the corporate body for any liability incurred in respect of the charity.

Conflicts of Interest

If any arrangements include transactions between the trustees or individuals or organisations that are connected with it, including in the case of a corporate trustee, directors and trustees must ensure any conflicts of interest are identified and declared and properly managed. Any self-dealing and/or trustee benefits must be properly authorised. The management of conflicts of interest is particularly important where there is a sole or few trustees.

Where a conflict of interest is not adequately managed, the trustees’ decision could be legally challenged and can result in a regulatory intervention. Even where these consequences are avoided, unmanaged conflicts of interest undermine effective decision making and can attract adverse publicity for the charity.

Trustees must make decisions solely in the charity’s interests. They should not allow their judgement to be swayed by personal prejudices or dominant personalities. Things can go wrong when trustees place too much reliance on a few individuals, whether at trustee level or in staff and when they do not put in place sufficient safeguards to ensure accountability. Part of the trustee’s role is to critically and objectively review proposals and challenge assumptions in making decisions. No one should be able to direct the trustees or drive decisions through without sufficient consideration. Trustees who simply defer to the opinions and decisions of others would not be discharging their duties properly.

Tax planning arrangements

Where trustees seek to enter into tax planning arrangements they must satisfy their duty of prudence and ensure:

• the arrangements are lawful
• they have power to enter into the arrangements in question
• they are neither conflicted in a way which cannot be managed nor have the potential to benefit personally from any arrangement
• they take and consider appropriate independent specialist advice about obtaining fiscal relief or minimising tax in the context of their responsibilities, such advice being independent of both the charity and the promoter of any proposed arrangements
• a record is kept of their decision-making including any tax law, tribunal decision or professional advice upon which they are relying
• they take into account and consider any published guidance and advice as to the lawfulness of the proposed arrangements offered or available from HMRC
• by entering into the arrangement, that they do not expose any of the charity’s property to undue risk
• that the proposed transactions will not damage the reputation of the charity and that they have considered how the character of the arrangement fits with the aims of the charity and the ethos of its donors and beneficiaries
• overall, that the arrangements are in the best interests of the charity

Tax Avoidance

Trustees need to be aware that charities may be used by others in tax planning arrangements and sometimes a charity may be needed in a structure to make the proposals work, for tax, or other purposes. The people responsible for ensuring that any involvement of the charity is in its best interests are the trustees. Trustees must remember that what is in the best interests of the charity may not be in the best interests of the other parties. Sometimes that may mean the charity cannot agree to be involved in the proposals and if concerns arise after they have agreed to participate, they should consider withdrawing to protect the charity’s assets and reputation.

Before entering into such schemes or complex arrangements with third parties that have significant tax implications, trustees must ensure they take independent professional advice, consider the guidance and alerts on HMRC’s website about tax avoidance schemes, carefully consider all the risks and fully record their decision making.

Trustees need to be aware that where HMRC comes across tax avoidance schemes, it actively challenges them, through the courts where appropriate. It is possible for tax avoidance schemes to be disclosed to HMRC and if this is the case, it may have been given a Scheme Reference Number (SRN) by HMRC. However, trustees need to be aware that the issue of a SRN does not mean either that HMRC ‘approves’ the scheme or that HMRC accepts that the scheme achieves its intended tax advantage. HMRC provides further advice and information to be aware of on tax avoidance and related issues.

A charity’s involvement in tax avoidance schemes, and complicated arrangements where there is the potential for others to benefit significantly, can damage public trust and confidence in that charity and charities more generally. The Commission does not encourage charities’ involvement in these types of schemes and any breaches of charity law which may arise in connection with a charity’s involvement in such schemes will be investigated and dealt with robustly. In the course of this case, the Commission obtained confirmation from the High Court that, because of their duty to apply charitable assets prudently, charity trustees do not have the freedom to ‘take a punt’ on speculative tax litigation, even if the charity has enough money to pay for it.

Tax avoidance is challenged by HMRC and can be subject to regulatory scrutiny by the Commission. Examples of previous arrangements that have been considered to be tax avoidance in beach of trustees’ duties and responsibilities have involved:

• borrowing funds to buy investments for a charity and assigning them to individuals at a nominal price, where:
  • the investments are then sold at market value and the proceeds ‘donated’ to charity enabling it to repay the loan
  • this artificial transaction seeks to generate tax relief for individuals and gift aid receipts for the charity
• leasing empty properties from private landlords in which negligible charitable activity subsequently takes place, where:
  • the charity seeks to claim business rates relief on the property resulting in a loss of revenue to the local authority and seeks to avoid the landlord paying rates on an empty property
  • the charity may receive funding for its facilitation of this transaction in the form of a ‘reverse premium’
• serial and contrived financial transactions involving charities and companies which seek to disguise what may have been a taxable transaction

The principal aim of such arrangements is to confer advantage on private businesses or individuals with any benefit to the charity being a by-product of the scheme rather than its principal aim. Apart from being subject to a challenge from HMRC, such arrangements are not consistent with trustees’ duties to act prudently and to further the charity’s purposes in its best interests for the public benefit. The risks to the charity involved include damage to their reputation. Of great concern to the Commission are the risks of wider damage to the reputation of the charity sector in the eyes of the general public and Parliament, and the potential loss of other tax reliefs to the sector as a result of, or as a necessary by-product of, action to stop or close such schemes.

The Disclosure of Tax Avoidance Schemes (DOTAS) legislation places a duty on promoters of certain schemes to notify HMRC of the relevant details of the scheme. This legislation is operated by HMRC and not the Commission and requires advance notice of tax schemes that meet certain criteria.

HMRC and the Commission have regular discussions about charity matters, including tax avoidance issues. There are regular exchanges of information about charities of common concern, under the statutory gateway. The Commission is prohibited under the law from confirming which charities these discussions relate to, whether it has discussed them with HMRC or disclose anything about these discussions as under section 57(3) Charities Act 2011, it is a criminal offence for the Commission to disclose this information without the consent of HMRC^{[footnote 61]}.

Further regulatory advice and guidance can be found in the Commission’s guidance on charities and charity tax reliefs

1. Where a company acts as trustee of a charity, it is known as corporate trustee and it is the company itself that is the charity trustee, with responsibility for the general management and control of the administration of the charity. The corporate trustee then, in turn, has directors who have the general control and management of the corporate trustee. The fiduciary duties owed by the directors to the company under company law effectively mirror and are similar to the duties of a charity trustee to a charity. ↩

2. For the purposes of the law of England and Wales, a charitable purpose is a purpose which (a) falls within section 3(1) of the act, and (b) is for the public benefit (see section 4 of the Act). ↩

3. Gilt is a UK Government liability in sterling, issued by HM Treasury and listed on the London Stock Exchange. The term ‘gilt’ or ‘gilt-edged security’ is a reference to the primary characteristic of gilts as an investment: their security. This is a reflection of the fact that the British Government has never failed to make interest or principal payments on gilts as they fall due. See UK Debt Management. ↩

4. See HMRC’s gift aid guidance. ↩

5. According to HMRC gift aid guidance a tax arrangement must be disclosed when it will, or might be expected to, enable any person to obtain a tax advantage; that tax advantage is, or might be expected to be, the main benefit or one of the main benefits of the arrangement; it is a tax arrangement that falls within any description prescribed in the relevant regulations. ↩

6. Under BVI company law ↩

7. The Commission has obtained an unsigned copy of a consent letter dated 26 January 2010 in the name of Mr Stones, which says he consents to act as a director with immediate effect. However, it is not known if he signed the letter on 26 or 27 January. When complying with a section 47 direction on 27 April 2015 Mr Jenner disclosed a schedule of appointments/resignations which records Mr Stones as being appointed on 27 January. ↩

8. Mr Jenner was a director of Mountstar from 02/01/09 to 22/01/10, then 03/06/10 to 26/11/10, and then 03/12/10 to 10/04/14. Anthony Mehigan was appointed a director on 20 January 2009. He resigned on 22 February 2009 and was reappointed on 23 February 2009. He remained in situ as the sole director of Mountstar during the inquiry as confirmed by a schedule of appointments provided by Mr Jenner on 27 April 2015 as part of his response to the s47 direction made by the inquiry on 27 April 2015. ↩

9. See paragraph 12 of the Tribunal Decision ↩

10. Mr Jenner told the investigation at the books and records review conducted on 16 December 2010 that HNWTS had signed documents on behalf of individuals involved in the Scheme under a power of attorney and did so for convenience so that documents were signed quickly and at the right time. The Commission was informed that this was appropriate in the context of such schemes which were pre-planned and designed to be transacted in very short time. ↩

11. Mr Jenner in interview on 28 May 2014 confirmed “I think it was set up specifically with me and [Mr Mehigan] as shareholders/directors, because it was to be used in a tax avoidance scheme”. It effectively acts as trustee and “its trustee of, I think, maybe 500 trusts that was set up for a tax avoidance scheme.” ↩

12. At that time, the Commission ran two kinds of investigation, reserving statutory inquiries for where it needed to exercise powers which could only be used when a statutory inquiry had been opened in the form of a regulatory compliance case. ↩

13. In the Charity’s 2012 Annual Trustee’s Report, the Trustee states that making the £80,000 grants during its financial year ending 31 March 2012 “was not subsequently thought possible … because of the regulatory investigation continuing longer than envisaged” and “confirmed that the grant payments of £80,000 shall be made in the year ending 31 March 2013”. ↩

14. In its briefing “Tackling tax avoidance”, HMRC describes tax avoidance as “bending the rules of the tax system to gain a tax advantage that Parliament never intended. It often involves contrived, artificial transaction that serve little or no purpose other than to produce a tax advantage. It involves operating within the letter – but not the spirit – of the law.” It sees a small proportion of tax payers who actively seek opportunities to avoid paying tax and promoters of avoidance schemes often market them with promises of large savings and underplay the risks. HMRC states that it “relentlessly challenges tax avoidance and has a highly successful record of defeating avoidance scheme in the courts.” ↩

15. Sections 54 to 59 Charities Act 2011 ↩

16. Section 57(3) Charities Act 2011 ↩

17. https://www.gov.uk/government/publications/charity-tax-reliefs-guidance-on-charity-commission-policy/charity-tax-reliefs-guidance-on-charity-commission-policy ↩

18. These centred on the adequacy of the Charity’s accounting practices and procedures and the legitimacy of its grant expenditure. There was significant risk of damage to public trust and confidence not just in the Charity but due to concerns about the abuse of gift aid schemes in charities more widely. ↩

19. Under s54 of the Act HMRC’s express consent is required for disclosure of information shared. ↩

20. https://www.gov.uk/claim-gift-aid/how-to-claim ↩

21. Under section 57(2) of the Act. ↩

22. This order was revoked on 19 August 2013, following the Interim Manager assuming control of all the charity’s assets. ↩

23. See paragraph 151 of the Tribunal Decision. ↩

24. See paragraph 211 of the Tribunal Decision. ↩

25. See paragraph 217 of the Tribunal Decision. ↩

26. The financial penalties were paid by Mr Jenner from his own funds. ↩

27. In general terms, a bare trustee is someone who holds property in trust for the absolute benefit and at the absolute disposal of others, and who has him/herself no beneficial interest in it and no duties to perform in respect of it except to convey or transfer it to the person or organisation entitled to hold it, and he/she is legally bound to convey or transfer the property in this way when required to do so. ↩

28. Mr Jenner told the investigation that he had business dealings unrelated to this investigation with a partner of Harry Associates which he believed was set up around January 2009. ↩

29. This calculation is based on the assumption that the agreement continued throughout the running of the Scheme on the same basis as for the rounds until March 2010. The fees chargeable by the Intermediary are not payable by the Charity for the two August 2010 rounds as agreed between these parties. ↩

30. This information is collated from the information and documents provided by the Charity at the investigation’s books and records review visit on 16 December 2010. ↩

31. In interview with the inquiry on 28 May 2014, Mr Jenner estimated this was £5,000 for the first round and £3,000 for the second round. ↩

32. In Interview with the inquiry on 12 June 2014 – this was confirmed by Mr Jenner in interview on 28 May 2014 – it was “…set up specifically for these purposes in January 2010” ↩

33. In interview with the inquiry on 28 May 2014, Mr Jenner confirmed that the VL Settlement was not used in any previous tax avoidance schemes or any since. It was in essence a Special Purpose Vehicle trust for this arrangement. ↩

34. HMRC makes clear in its guidance that the avoidance scheme it became aware of, which sought to generate repayments of income tax under gift aid, which was dependent on the participation of a charity through a circular series of payments, does not generate an entitlement to tax relief for individuals or the charity because there is no voluntary gift to the charity. ↩

35. The Court’s judgment is available in full. ↩

36. See paragraph 77 of the Court’s judgment. ↩

37. See paragraph 143 of the Tribunal Decision. ↩

38. This similarity does not assist to overcome the jurisdictional issues in this matter. ↩

39. See Public Trustee v Cooper [1999] WL 1425717 per Hart J. A similar principle applies to a director of a corporate trustee. ↩

40. Mr Stones confirmed in interview in the Inquiry that the directors had been conflicted when making decisions about the charity’s participation in the Scheme but he was of the view that those conflicts had been managed by Mr Jenner resigning. ↩

41. In interview to the Inquiry 28 May 2014. ↩

42. In interview with the inquiry on 28 May 2014, Mr Jenner explained “He knew the reason for it in terms of hopefully the UK charity would, if the scheme worked, make significant funds. And as a person who runs a charity, he was keen on doing that.” ↩

43. Fees in excess of £5.5 million pursuant to the fundraising agreement dated 30th January 2010 in respect of the first five rounds and a further £855,000 payable for the second five rounds. ↩

44. See paragraph 88 of Charity Commission, Mountstar, Burchfield, Phillips [2016] EWHC 876 (Ch.) ↩

45. In interview with the inquiry on 21 May 2014. “Well, we discussed, again, as part of that general discussion, that it was going to be a charity formed with the main aim of benefiting children, young people and children, but, I mean, it was as vague as that..” ↩

46. In interview with the inquiry on 21 May 2014. ↩

47. In interview with the inquiry on 21 May 2014. ↩

48. In interview with the Inquiry on 28 May 2014. ↩

49. Mr Jenner, as the author of the proposal letter and drafter of the 30 January 2010 resolution, was aware the potential reputational risks and has told the Commission that other charities had declined to participate in the Scheme for reputational reasons. He justified the Charity’s participation on the basis that it did not have established donors, the implication being that such donors might baulk at being associated with a charity engaged in a tax avoidance scheme. ↩

50. Paragraph 171 of the Tribunal Decision. ↩

51. Paragraph 211 Tribunal Decision. ↩

52. [Anthony Mehigan: Transcript – pages 90 to 91 and pages 130 and 131]. ↩

53. Under section 34(1) (b) of the Act. ↩

54. Under 76(3) (g) and 337(6) of the Act. ↩

55. This order was discharged on 19 August 2013, following the Interim Managers assuming control of all the Charity’s assets. ↩

56. The Commission engaged the services of a forensic accountant from March to May 2014. The scope of the work was to scrutinise documents held by the Interim Manager and/or the Commission relating to the Scheme entered into by the Charity and identify and map the flow of funds, including any recorded fees/commissions, and gilts in a sample of transactions effected in the Scheme during 2010, to identify any gaps, inconsistencies or irregularities in the documentation already held, whether relating to the Scheme as a whole or the transaction sample. ↩

57. Under sections 54 to 59 of the act. ↩

58. Financial Reporting Council (https://frc.org.uk/news/june-2017/outcome-of-disciplinary-cases-in-connection-with-t). ↩

59. As explained in the Tribunal Decision at paragraph 144 “If the conflicted director has failed to disclose a profit or interest but is absent at the time when the material decision is made, the liability to account for any benefit (if any) is owed to Mountstar but probably not the Charity: see Gregson v HAE Trustees [2009] Bus LR 1640. Where only one director, whether in form or substance, is the decision-maker and has failed to declare material conflicts of interest such that he should have recused himself, we doubt whether he would be able to keep his profits and benefits with impunity” ↩

60. In its briefing ‘Tackling tax avoidance’, HMRC describes tax avoidance as ‘bending the rules of the tax system to gain a tax advantage that Parliament never intended. It often involves contrived, artificial transactions that serve little or no purpose other than to produce a tax advantage. It involves operating within the letter – but not the spirit – of the law.’ HMRC sees a small proportion of tax payers who actively seek opportunities to avoid paying tax and promoters of avoidance schemes often market them with promises of large savings and underplay the risks. HMRC states that it ‘relentlessly challenges tax avoidance and has a highly successful record of defeating avoidance scheme in the courts.’ ↩

61. See section 57(3) of the Act. ↩