# Company exploiting charitable arm? **URL:** \ **Category:** Miscellaneous and Personal Stuff I Must Share\ **Created:** [February 25, 2016, 11:19am UTC](https://boards.straightdope.com/t/company-exploiting-charitable-arm/747081 "2016-02-25T11:19:36Z")\ **Posts on this page:** 20\ **Page:** 1
**Author:** ![Batistuta](https://avatars.discourse-cdn.com/v4/letter/b/58956e/32.png) [@Batistuta](https://boards.straightdope.com/u/Batistuta)\ **Post date:** [February 25, 2016, 11:19am UTC](https://boards.straightdope.com/t/company-exploiting-charitable-arm/747081/1 "2016-02-25T11:19:36Z")
I’ve had a nagging question for a while, so today I’m finally going to ask out loud. I currently work for a small company - I was the third person to join, and now two years later there are about a dozen of us. You see, my company is for-profit. Everything we do, we do to get money and pay dividends to investors. However, we also have a charitable arm. This charitable arm does nothing at all as far as I’m concerned. My boss tends to use ‘the charity’ as a way of getting discounts. For example, if we need to get a legal licence and the cost of getting it is lower for charities, we get it for the charity (even though the licence itself is used in for-profit work). If there is an expensive piece of software, we always ask if we can get a discount for a charity (even though, again, it is only used in for-profit work). Time and again ‘the charity’ is being used to get discounts for the business here and there. I really do not feel comfortable with it. I know it is immoral - can anyone tell me if it is illegal, and how illegal it is? I’m working up the courage to tell my boss how uncomfortable I feel about it, so I want to get an understanding of where the situation leaves us as a company. Ta! ---
**Author:** ![Ruken](https://avatars.discourse-cdn.com/v4/letter/r/f475e1/32.png) [@Ruken](https://boards.straightdope.com/u/Ruken)\ **Post date:** [February 25, 2016, 12:14pm UTC](https://boards.straightdope.com/t/company-exploiting-charitable-arm/747081/2 "2016-02-25T12:14:46Z")
> [@Batistuta](#): > > However, we also have a charitable arm. Do you know how the two are organized? How the charity is funded? If the company is deducting money sent to the charity for which it receives goods or services, the IRS might find that interesting. ---
**Author:** ![Batistuta](https://avatars.discourse-cdn.com/v4/letter/b/58956e/32.png) [@Batistuta](https://boards.straightdope.com/u/Batistuta)\ **Post date:** [February 25, 2016, 12:23pm UTC](https://boards.straightdope.com/t/company-exploiting-charitable-arm/747081/3 "2016-02-25T12:23:27Z")
> [@Ruken](#): > > Do you know how the two are organized? How the charity is funded? If the company is deducting money sent to the charity for which it receives goods or services, the IRS might find that interesting. (Just a thing I forgot to mention: the company is based in London, so I imagine in any case it wouldn’t be the IRS getting involved by HMRC or one of those). Anyway: it’s hard to say how the charity is funded. Quite simply, the charity does **nothing** beyond existing. There have been cases when the charity has bid for work (which could only be granted to non-profit organisations) and the plan was to use the money received by the charity to ‘hire’ employees of the main company and pay their salaries while they did charity work. It all seemed quite fishy to me. Does that answer your question? ---
**Author:** ![Ruken](https://avatars.discourse-cdn.com/v4/letter/r/f475e1/32.png) [@Ruken](https://boards.straightdope.com/u/Ruken)\ **Post date:** [February 25, 2016, 12:27pm UTC](https://boards.straightdope.com/t/company-exploiting-charitable-arm/747081/4 "2016-02-25T12:27:18Z")
It does sound fishy to me. But given that I’m already shaky on the relevant US rules, which vary by state, I don’t know that I’ll have much useful to contribute about UK rules. ---
**Author:** ![Omar\_Little](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/omar_little/32/269_2.png) [@Omar\_Little](https://boards.straightdope.com/u/Omar_Little)\ **Post date:** [February 25, 2016, 4:44pm UTC](https://boards.straightdope.com/t/company-exploiting-charitable-arm/747081/5 "2016-02-25T16:44:27Z")
Seems unethical at a minimum. ---
**Author:** ![Defensive\_Indifference](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/defensive_indifference/32/6502_2.png) [@Defensive\_Indifference](https://boards.straightdope.com/u/Defensive_Indifference)\ **Post date:** [February 25, 2016, 4:51pm UTC](https://boards.straightdope.com/t/company-exploiting-charitable-arm/747081/6 "2016-02-25T16:51:50Z")
I’m in the US, and I’m not a lawyer. So I’m afraid I can’t help you with the factual part of your question. I do agree, though, that this sounds pretty unethical. And I suspect your boss knows and doesn’t care that it is. So in response to… > [@Batistuta](#): > > I’m working up the courage to tell my boss how uncomfortable I feel about it, so I want to get an understanding of where the situation leaves us as a company. I would ask if you have another job to go to when your boss tells you to suck it up. ---
**Author:** ![Batistuta](https://avatars.discourse-cdn.com/v4/letter/b/58956e/32.png) [@Batistuta](https://boards.straightdope.com/u/Batistuta)\ **Post date:** [February 25, 2016, 4:58pm UTC](https://boards.straightdope.com/t/company-exploiting-charitable-arm/747081/7 "2016-02-25T16:58:47Z")
> [@Bayard](#): > > I’m in the US, and I’m not a lawyer. So I’m afraid I can’t help you with the factual part of your question. I do agree, though, that this sounds pretty unethical. And I suspect your boss knows and doesn’t care that it is. So in response to… > > I would ask if you have another job to go to when your boss tells you to suck it up. Thanks for your interest 😉 I wouldn’t worry too much about that. Due to a recent re-structuring I’m by far the most important person in the company, so there’s no way he would sack me. Plus I’ve challenged him on pretty big stuff before and he took it well. I just want to get some idea of the law behind it ---
**Author:** ![TriPolar](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/tripolar/32/3008_2.png) [@TriPolar](https://boards.straightdope.com/u/TriPolar)\ **Post date:** [February 25, 2016, 5:11pm UTC](https://boards.straightdope.com/t/company-exploiting-charitable-arm/747081/8 "2016-02-25T17:11:41Z")
In the US there is a lot of federal regulation of non-profit corporations. Unfortunately there isn’t much oversight of this kind of activity, it is primarily concentrated on money raising and expenditures of that money, your company is simple asking for discounts from other businesses. Perhaps they would be committing fraud or some minor tax violation here in the US, but only the businesses providing the discount would care enough to look into it, and they would probably be getting a tax advantage from their charitable donation anyway. It’s not a nice way for a business to operate but it’s a trivial concern compared to the massive levels of non-profit abuse that occur in this country in money raising and expenditures. ---
**Author:** ![Quartz](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/quartz/32/267_2.png) [@Quartz](https://boards.straightdope.com/u/Quartz)\ **Post date:** [February 25, 2016, 5:14pm UTC](https://boards.straightdope.com/t/company-exploiting-charitable-arm/747081/9 "2016-02-25T17:14:20Z")
> [@Batistuta](#): > > Due to a recent re-structuring I’m by far the most important person in the company, How much is the stuff that’s been going on your responsibility? Or, have you been set up to be the fall guy? A long while ago I interviewed for a position at HMRC looking after people who investigated stuff like this. You need to get proper legal advice ASAP. Like tomorrow. Seriously, the hammer may drop at any time. ---
**Author:** ![gnoitall](https://avatars.discourse-cdn.com/v4/letter/g/bb73d2/32.png) [@gnoitall](https://boards.straightdope.com/u/gnoitall)\ **Post date:** [February 25, 2016, 5:20pm UTC](https://boards.straightdope.com/t/company-exploiting-charitable-arm/747081/10 "2016-02-25T17:20:50Z")
Not a lawyer. Not a Brit. But let me ask this: does the “charitable discount” result in a reduction of [VAT](https://en.wikipedia.org/wiki/Value-added_tax) paid? If so, that strikes me as small-time tax fraud. Googling turns up [this from HMRC](https://www.gov.uk/vat-charities/how-to-claim-relief) indicating that being a registered charity allows for purchase-time VAT exemption… so fraudulent charity registration or inappropriate use of charity VAT exemption for non-charity purchases definitely has the smell of tax fraud. Again. Not a lawyer. Not Her Majesty’s subject. Not a tax accountant, either. But still… something worth considering, it seems. (Linky for wikipedia definition of VAT for the benefit of non-Europeans) ---
**Author:** ![Batistuta](https://avatars.discourse-cdn.com/v4/letter/b/58956e/32.png) [@Batistuta](https://boards.straightdope.com/u/Batistuta)\ **Post date:** [February 25, 2016, 6:04pm UTC](https://boards.straightdope.com/t/company-exploiting-charitable-arm/747081/11 "2016-02-25T18:04:53Z")
**Quartz -** no, the good thing is that the stuff is not my responsibility. It’s either my boss’ responsibility or the responsibility of a person who left quite recently. It’s a small company so I’ve had to take over all of her tasks after she left - but luckily I’m not involved in any of the unethical activity looking back. I am not too worried about the consequences for me. I \*\*am \*\*worried about what will happen if I don’t express my concerns. **gnoitall -** good point. I imagine we did get a VAT discount when buying some of that stuff, so I guess that’s part of the issue. Definitely worth considering ---
**Author:** ![SmellMyWort](https://avatars.discourse-cdn.com/v4/letter/s/ea5d25/32.png) [@SmellMyWort](https://boards.straightdope.com/u/SmellMyWort)\ **Post date:** [February 25, 2016, 6:54pm UTC](https://boards.straightdope.com/t/company-exploiting-charitable-arm/747081/12 "2016-02-25T18:54:31Z")
Obviously if you bring it up you want to present it as being concerned about the welfare of the company and not an accusation of wrong-doing. If this is a small start-up that’s doing really well it could be that the intention is/was there but no one has time to organize the charity work. Since you are filling in for that role, maybe you could organize a cancer walk, or scholarship, or something to help ease your worry and legitimize that arm of the company. ---
**Author:** ![Boyo\_Jim](https://avatars.discourse-cdn.com/v4/letter/b/87869e/32.png) [@Boyo\_Jim](https://boards.straightdope.com/u/Boyo_Jim)\ **Post date:** [February 25, 2016, 7:39pm UTC](https://boards.straightdope.com/t/company-exploiting-charitable-arm/747081/13 "2016-02-25T19:39:27Z")
OP, really – don’t talk to your boss about this. He certainly already understands he’s operating a fraudulent charity, whether or not it stays within the bounds of the law. You would just be putting yourself in his sights. Talk to the government tax people, or the local media, but do it anonymously. ---
**Author:** ![Dewey\_Finn](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/dewey_finn/32/4222_2.png) [@Dewey\_Finn](https://boards.straightdope.com/u/Dewey_Finn)\ **Post date:** [February 25, 2016, 7:39pm UTC](https://boards.straightdope.com/t/company-exploiting-charitable-arm/747081/14 "2016-02-25T19:39:51Z")
> [@Batistuta](#): > > If there is an expensive piece of software, we always ask if we can get a discount for a charity (even though, again, it is only used in for-profit work). I think you’d need to read the end user license agreement for the software, or whatever contract was signed, but I’ll bet that the discounted software is not licensed for commercial use. ---
**Author:** ![Quartz](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/quartz/32/267_2.png) [@Quartz](https://boards.straightdope.com/u/Quartz)\ **Post date:** [February 25, 2016, 10:20pm UTC](https://boards.straightdope.com/t/company-exploiting-charitable-arm/747081/15 "2016-02-25T22:20:09Z")
> [@Batistuta](#): > > I am not too worried about the consequences for me. You should be worried as **you** are now responsible. **You** are now in the firing line. Failure to act could be seen as covering up. Go see a lawyer in the relevant field ASAP. DON’T go to the Citizen’s Advice Bureau as they will inform HMRC. Indeed, MI5 are probably monitoring this traffic and forwarding this thread to HMRC anyway. 🙂 ---
**Author:** ![Kent\_Clark](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/kent_clark/32/105_2.png) [@Kent\_Clark](https://boards.straightdope.com/u/Kent_Clark)\ **Post date:** [February 26, 2016, 3:00am UTC](https://boards.straightdope.com/t/company-exploiting-charitable-arm/747081/16 "2016-02-26T03:00:01Z")
> [@Batistuta](#): > > Due to a recent re-structuring I’m by far the most important person in the company, so there’s no way he would sack me. I don’t know what the proper British response is, but in the U.S. we tend to snort derisively at this point. There’s nothing like asking your boss if he’s involved in illegal activity to suddenly become dispensible. > [@Quartz](#): > > How much is the stuff that’s been going on your responsibility? Or, have you been set up to be the fall guy? Also this. ---
**Author:** ![Stanislaus](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/stanislaus/32/3391_2.png) [@Stanislaus](https://boards.straightdope.com/u/Stanislaus)\ **Post date:** [February 26, 2016, 11:47am UTC](https://boards.straightdope.com/t/company-exploiting-charitable-arm/747081/17 "2016-02-26T11:47:16Z")
Ultimate responsibility for the actions of a charity lie with its trustees. They have a legal duty to ensure that the charity’s activities meet its stated goals, and that it follows the law. They can also be personally liable for misused funds. Who are they? If you, as someone who was third to join this company, found yourself nominated as one this is extremely serious for you. If not, it’s extremely serious for them. How often do they meet? Are there minutes of these meetings? Have they signed off the charity’s accounts? Trustees have a legal responsibility to ensure the charity is being run for public benefit, as defined by the charity’s governing document. Does this document exist and what does it say? Has the charity been run for the public benefit and can this be proved? I.e. When the charity has raised money, what has it spent it on? Can this be shown to have met its public benefit goals? The Charity Commission has guidance for trustees on both tax avoidance and tax evasion. You will find it interesting reading, particularly these sections: > [@Charity Commission](#): > > 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: > > [ul] > [li]borrowing funds to buy investments for a charity and assigning them to individuals at a nominal price, where:[/li][li]the investments are then sold at market value and the proceeds ‘donated’ to charity enabling it to repay the loan[/li][li]this artificial transaction seeks to generate tax relief for individuals and gift aid receipts for the charity[/li][li]leasing empty properties from private landlords in which negligible charitable activity subsequently takes place, where:[/li][li]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[/li][li]the charity may receive funding for its facilitation of this transaction in the form of a ‘reverse premium’[/li][li] **serial and contrived financial transactions involving charities and companies which seek to disguise what may have been a taxable transaction** [/li][/ul] > [@](#): > > Charities must not engage in tax evasion and tax fraud. Tax evasion is the unlawful concealment of taxable income or gains or the illegal or fraudulent presentation of a taxpayer’s affairs to evade paying tax. Tax fraud is claiming tax reliefs when not eligible, for example: > > [ul] > [li] **a charity knowingly claiming zero rating for VAT for a new building that is used wholly for commercial and not charitable purposes** [/li][li]a charity paying for goods and services in cash without a supporting tax invoice[/li][li]a charity purporting to employ a person on a self -employed basis when the nature of their work for the charity and the contractual relationship with the charity means that they should be treated as an employee for tax purposes[/li][li]knowingly claiming gift aid when qualifying donations have not been received by the charity[/li][li] **knowingly presenting expenditure included for a private or non-charitable purpose as charitable expenditure in accounts or tax returns** [/li][/ul] ---
**Author:** ![Stanislaus](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/stanislaus/32/3391_2.png) [@Stanislaus](https://boards.straightdope.com/u/Stanislaus)\ **Post date:** [February 26, 2016, 11:54am UTC](https://boards.straightdope.com/t/company-exploiting-charitable-arm/747081/18 "2016-02-26T11:54:48Z")
It seems from what you say that an entrepreneur who doesn’t know much about charity has come up with a “wizard wheeze” to save their company some money. If so, it is extremely unlikely that they have acted from a position of knowledge and competence. It would be interesting, for example, to see what kind of legal advice they obtained before arranging their affairs in this manner. There are some other points to note: 1. HMRC have a duty to find and eradicate tax evasion, and to reduce tax avoidance. 2. Sometimes this involves going up against multi-national companies who can afford expensive and talented lawyers and prolonged legal battles. 3. Sometimes it involves going up against small companies who have little budget for legal advice and no resource for prolonged legal battles. You are welcome to guess just how enthusiastically HMRC will respond to an opportunity to deal with a small company operating a “wizard wheeze” charity scheme. (Apologies, I left the link to the Charity Commission guidance off the last post. It is [here](https://www.gov.uk/government/publications/charity-tax-reliefs-guidance-on-charity-commission-policy/charity-tax-reliefs-guidance-on-charity-commission-policy).) ---
**Author:** ![Stanislaus](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/stanislaus/32/3391_2.png) [@Stanislaus](https://boards.straightdope.com/u/Stanislaus)\ **Post date:** [March 15, 2016, 10:59am UTC](https://boards.straightdope.com/t/company-exploiting-charitable-arm/747081/19 "2016-03-15T10:59:44Z")
Bumping this on the off-chance that the OP is still around and can give an update, because I’m morbidly curious about the outcome of all this. ---
**Author:** ![campp](https://avatars.discourse-cdn.com/v4/letter/c/c5a1d2/32.png) [@campp](https://boards.straightdope.com/u/campp)\ **Post date:** [March 15, 2016, 1:17pm UTC](https://boards.straightdope.com/t/company-exploiting-charitable-arm/747081/20 "2016-03-15T13:17:45Z")
As a long time purchasing professional, this sounds unethical.