Donors caught up in £70m fraud should have been more aware

By: 

Cheryl Chapman

Managing Editor, Philanthropy UK

Donors caught up in the £70m fraud committed by an advisor who exploited tax benefits around gifting company shares to charity, should have heard alarm bells ringing, says Clive Cutbill, philanthropy and charity tax specialist at Withers Worldwide.

The scam was orchestrated by deputy managing director at Vantis Tax Ltd David Perrin who was found guilty of fraud at Blackfriars Crown Court on January 17th. He reportedly pocketed £2m in fees from 600 wealthy clients who were advised through a network of advisors to buy stocks in four companies set up by the 46-year-old Luton man. After floating them on the Channel Islands Stock Exchange the shares were inflated by share sales sponsored by Perrin, ramping the price to £1 from the mere pence his clients paid for them. 

The inflated shares were gifted to unsuspecting charities and clients attempted to claim back £70m in tax relief]. The court heard that Perrin himself also attempted to claim back tax relief on the bogus share gift. Unsurprisingly, HMRC denied the relief as the shares were in reality valueless.

Cutbill says that tax-saving schemes “that sound too good to be true normally are” and advised donors to enquire about the reality of what was being proposed to them. Similarly, he said that charities needed to think carefully if they were offered shares in a company they had never heard of, particularly if there were unusual conditions attached to the gift. Although the denial of tax relief was fundamentally a problem for the donors (who had paid fees to Vantis), he pointed out that if the charities to which the worthless shares were gifted had acted on the basis that they had a value, they too could have lost out.  "Sometimes you should look a gift horse in the mouth,” said Cutbill.

Withers' colleague Alana Lowe-Petraske added: "Once in a while the fraudulent actions of an unscrupulous few can overshadow the transformative power of philanthropy and the genuine commitment and real altruism of donors. 

“It's important to recall though that when used lawfully, the tax reliefs available to incentivise giving never leave the donor better off than she would have been without the gift - even the most generous reliefs leave the donor out of pocket and the community better off."

Cutbill says he does not feel this isolated case should have implications for tax incentives for giving generally: “The real point is that the shares given did not have the value they were claimed to have; fraudsters need to be prosecuted not reliefs changed.”

An HMRC spokesperson said while Perrin had been found guilty and will be sentenced on February 9th the case is not yet concluded and there may be further charges. He said there was no evidence however to suggest donors were complicit in the case.