'Charity' evades £70k in VAT on political campaigning

A supposedly charitable organisation which has received over £150,000 of government funds for fighting racism in deprived areas has been defrauding the government of tens of thousands of pounds after misusing its charitable status to escape paying VAT.

Hope not Hate Ltd receive most of their funding from large Unions and enjoy the support of many Labour MPs including jailed expenses fraudster Denis MacShane, but a significant percentage comes from the Department for Communities and Local Government which is funnelled through its charitable arm, Hope not Hate Educational Ltd.  Hope not Hate Educational Ltd was previously called the Searchlight Educational Trust. Since 2010 it has received over £150,000, getting over £63,000 in 2012 alone.

Hope not Hate Ltd, the non-charitable arm, was originally formed as a campaign within the Searchlight group and dedicated to anti-racism and anti-fascism. The group campaigned for many years against the National Front and the BNP, with Hope not Hate first being set up as a separate campaign under campaign director Nick Lowles in 2009. Following internal arguments between Lowles and Searchlight founders Gerry & Sonia Gable, Hope not Hate was separated from Searchlight and incorporated as a limited company under Lowles ownership, and with him as sole director. General Secretary of both Hope not Hate Ltd and Hope not Hate Educational Ltd is Labour Party activist and failed NEC & parliamentary candidate Ruth Smeeth. Having lost the safe Labour seat of Burton & Uttoxeter in 2010, she is currently working to lose Stoke on Trent and Kidsgrove in 2015.

Since 2010, it has been very much refocused as an anti-UKIP party as UKIP continue to make considerable gains in the polls. At one stage, Hope not Hate worked with UKIP to keep members of the far-right out, but it ceased co-operation with the anti-EU party when Lowles took control. Lowles background is within the hard left, having formerly been associated with both the Communist Party and the Socialist Worker's Party before fronting the Hope not Hate campaign from which he now makes a tidy living. 

 In the 2010 General Election, Hope not Hate Ltd filed total expenses of over £319,000 with the Electoral Commission, of which £310,000 was spent in England, with the rest split between Wales and Scotland. Most of this spend was directed against the BNP. Amongst Hope not Hate's biggest suppliers was Blue State Digital Inc, or BSD. BSD sprang from the activists surrounding Howard Dean's run for the US presidency, and morphed into an international political fund raising/consultancy business before being purchased by Sir Martin Sorrell's WPP Group in 2011.

Hope not Hate spent heavily with BSD. In total the invoices amount to £ 71,050. Of these invoices, £31,500 worth were from BSD UK, while a the remainder were invoiced from the US. Of the £39,500 invoiced by BSD US, all were for a 'monthly technology fee' and a 'monthly strategy fee'. Being invoiced by a US based company, VAT would not be included on the invoice, but should have been declared and paid by Hope not Hate as they are VATable services, and the additional expenditure should have appeared on their ElComm declaration.  There is no record of this VAT relating to the controlled period having been paid.

Of the remaining £31,500, all of it was invoiced by BSD UK, and for exactly the same services with one exception - there is a single invoice for 'Advertising' for £1,000, which includes VAT of £175. The remaining £ 30,500 has been invoiced free of VAT. On the total of £71,500, Searchlight paid only £175 of VAT, and appear to have evaded VAT which amounts to £12,258.75 at the then prevailing rate of 17.5%.

An accident? Not likely. As far back as 2002, the Charities Commission warned Hope not Hate's predecessor Searchlight about conducting political activities which were not concomitant with its charitable status and stated in its report that " A charity must not issue material that supports or opposes a particular political party or the government or seek to persuade members of the public to vote for or against a candidate or for or against a political party". It also warned that it should not  mix its charitable activities with its political ones and should establish a clear separation between the two bodies.

So why were they not charged VAT on what were clearly VAT-able invoices? There are two alternatives. The first is that BSD - now a part of Sir Martin Sorrell's WPP Group - either 'forgot' to charge or deliberately undertook to defraud HM Customs & Excise by not including VAT. The second is that as a charity, Searchlight/Hope not Hate Educational Ltd is not liable for VAT, and can apply for an exemption certificate which when given to suppliers permits them to not charge VAT on invoices.

Which is more likely? It's a 50:50 choice, really. Would a multi-national company have accidentally forgotten to invoice VAT? And if they deliberately didn't invoice VAT, why not? The only reason would be the production of an exemption certificate, and yet the services supplied would not fall within the permitted use of such a certificate. The question - if this is the case - must be whether BSD were aware that the services they were providing fell outside the scope of such a certificate. For links between senior BSD managers and directors and the Labour Party, see below and make your own judgement.

If most likely assumption is that Hope not Hate Ltd evaded VAT by supplying BSD with Hope not Hate Educational Ltd's VAT exemption certificate, and then used it to benefit from VAT evasion on work which was subsequently submitted to the Electoral Commission as expenses of Hope not Hate Ltd. By the time they ceased supplying invoices to ElComm, they had evaded over £12,000 in VAT. This is what is directly provable. BSD still act on Hope not Hate's behalf, and it is not unreasonable to assume that their bill has not got smaller than the £6,300/month they were previously billing. Since the 2010 General Election, 45 months have passed which would represent at current rates over £ 56,000 of VAT illegally evaded by Hope not Hate, bringing their total VAT evasion to almost £ 70,000.

Would BSD have been aware of this? It is difficult to imagine they would not. BSD ultimate owner Sir Martin Sorrell is trenchantly pro-European, calling only last week for the Conservative Party to adopt a more pro-European position, and he is a frequent collaborative letter writer to national newspapers calling for 'more Europe', along with other tycoons such as Sir Richard Branson. As BSD are charging for 'monthly strategy fees', it is difficult to imagine that they do not have at least some input into the anti-UKIP stance Hope not Hate have increasingly adopted.

This is probably assisted by the close links between the Labour Party and BSD. BSD were contracted last year to run Labour's on-line campaigning ahead of the 2015 general election, while BSD Political Director Gregor Poynton - husband of Labour MP Gemma Doyle - was the Labour leadership's preferred candidate for the Falkirk West seat currently held by former Labour MP Eric Joyce. BSD themselves operate Scottish Labour's website and host it on non-UK based servers.

Sample Blue State Digital invoice from Electoral
Commission - note the lack of VAT

Elsewhere, there are close links between BSD and Hope not Hate which probably help in the turning of a blind eye to misuse of charitable status. Matthew McGregor, MD of BSD UK, is a former Hope not Hate activist who previously worked for John Cruddas and Ken Livingstone, while Fabian Society staffer Richard Speight previously worked for BSD. Whether BSD knew or not, it is the responsibility of the seller to ensure that they are charging the correct amount of VAT, and with the close links between the Labour Party, Hope not Hate, the unions - many of whom BSD also represents - and BSD, it is inconceivable that there was not an awareness that HnH were campaigning politically rather than on a social ills.

At the time of writing, it is believed that formal complaints will shortly be made to HM Customs & Excise, the Electoral Commission, the Charity Commission and the police.