One of the UK’s biggest charities is a front for tax avoidance, screams The Times front page today. The Cup Trust, which has a rather minimal website and a wide-ranging mission to ‘provide grants to charities that seek to benefit children and young adults’ has, according to the Times, been used as a scheme to help wealthy donors avoid £46 million in tax by abusing Gift Aid.

Once again, the taint of tax dodging is casting a shadow over the vital work of thousands of charities and funders. Last year’s successful Give It Back George campaign argued that tax incentives for charitable giving are essential to encourage wealthy donors to give, and lumping generous philanthropists in with tax avoiders was an insult that could discourage them from giving. Iona argued on our blog that the presence of the Charity Commission should help to prevent fraud. But according to a spokesperson from the Charity Commission, the Cup Trust didn’t in fact break any charity laws, so they could not intervene.

This story raises all sorts of questions for the voluntary sector. Questions about regulation and due diligence: this case shows how important it is that the sector, and the bodies that keep it in check, are vigilant. Will reductions to the Charity Commission’s budget  mean this kind of thing happens more often? Or is the problem with the legislation underlying the Commission’s work? Do we need an independent body in the mold of the now defunct Intelligent Giving to scrutinise the sector and expose these types of activities as early as possible? Questions about transparency: the need for foundations, as well as operational charities, to be more open about where their money is going. This is part of a wider movement for more openness across the sector, a shift in culture away from covering up failures to airing and learning from them.

And perhaps most importantly, the story raises questions about public trust in charities.

Public trust is an immensely valuable and fragile thing. It doesn’t take much to damage the reputation of a charity, or indeed a whole sector. But it takes a lot of hard work and reassurance to repair it and win that trust back. Charity commission data from June 2012 put charities as the third most trusted public body, after doctors and the police—above social services, and the ordinary man or woman on the street, and way ahead of newspapers, MPs and government ministers. But this trust is precarious, and fluctuates widely over time, as research in 2011 from nfpSynergy showed.

So where does this exploitation of a system set up to encourage altruism leave us? Incentivising charitable giving is important, and if abuses like this continue then these tax breaks become harder to defend. The Charity Commission and the government need to be watchful to ensure abuses of the system aren’t allowed to slip below the radar. And the sector needs to shout even louder about the important and life-changing work that charities do. We need to be open about our failures as well as our successes, to ensure we keep hold of that most valuable of resources: public trust. Charitable status is a privilege, not a right, and we should treat is as such.

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