Friday, January 31, 2014

'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.


  1. anti racism and anti fascism, is not helped with the LIBLABCONS, as they reinforce, race issues as if all others except white British are victims, and that all else should be compensated

  2. If this is true then The Department For Communities and Local Government has lied (or at best willfully misrepresented the truth) in a Freedom of Information request, which I will look into and if necessary both rewrite to the DCLG and also place a complaint with the Information Commissioners Office. Here is their reply to me. The link follows:

    Your request asked for the following:

    “Please advise whether the DCLG has provided any financial contribution to the organisation ‘Hope Not Hate’ in 2012/2013.

    If so, please also outline the reason for the funding, the amount given thus far and whether this was intended as a single payment or ongoing.”

    The answer to your question is:

    The department does not hold any information relevant to your request. ‘Hope Not Hate’ has not received any funding from DCLG.

    You will notice that they have answered with a very particular choice of words which struck me as interesting at the time.

    1. If you go to the Charity Commission website, you can search for Hope not Hate Educational Ltd, aka Searchlight Educational Trust. In their accounts, you will see the amounts they describe as being 'ring fenced' as it was received from the DCLG. I have had some trouble searching by name on the CC website - better to use the charity number, which is 1013880.

    2. OK, thanks - will do so.

  3. I have asked the DCLG respondent for a clarification on her original answer.

    1. It is interesting that the respondent is from the 'Tackling extremism and hate crime team'. It is difficult to imagine that she wouldn't know about payments to them. I would be interested to hear the explanations for this oversight!

    2. I'll let you know, as and when.

  4. Sorry to disappoint you, and I have no sympathy with Hope Not Hate, but the VAT aspects of your article are nonsense. At least until 2011 and probably since then, Hope not Hate was not registered for VAT because it does not make taxable supplies. Its income is mainly grants and donations which are outside the scope of VAT. Therefore HNH is not a "relevant business person" for the purpose of the VAT reverse charge provisions on services supplied in the UK where the supplier belongs outside the UK.

    It may be the case that BSD UK should have charged VAT to HNH, but that would be BSD's failure not that of HNH. I think BSD UK did charge VAT to HNH after the period you have looked at.

    There is no reason why HNH Educational would have a VAT exemption certificate. Such a certificate permits suppliers not to charge VAT to charities on a very limited range of goods such as medicinal products. The list does not include services of the type supplied by BSD. If BSD UK supplies its services to HNH Educational it has to charge VAT as to any other customer.

    It may well be the case that HNH Educational engages in political campaigning but the rules for charities engaging in political activities have been relaxed a bit since 2002 and the Charity Commission isn't very interested in this now.

    1. In fact, quite a few of the services provided by Hope not Hate Educational Ltd would fall under the terms of VAT Notice 701/58 regarding goods associated with advertising and collections which would give them a good reason to possess a VAT exemption certificate. If you have a particular reason for thinking that BSD began charging VAT after the period for which invoices are publicly available after a year of failing to charge it, then by all means let me know what that reason is. If you are who I think you are, then you know how to contact me.

    2. The goods and services covered by VAT Notice 701/58 are very limited. The goods are those associated with collecting money such as charity collection boxes and lapel badges. As far as I know, HNH does not rattle collection boxes outside shops and stations or engage in door-to-door collections.

      All advertising within the charity's objectives is covered. However if you read and understand section 10 of the notice properly you will see firstly that the charity only has to prove to the supplier that it is a charity, for which it does not need an exemption certificate, and secondly that the advertising nevertheless falls within the conditions of the relief. The supplies by BSD to the non-charity HNH company cannot qualify because they are not supplied to a charity. If BSD supplies advertising services to HNH Educational they may qualify though paragraph 3.1 of the Notice would probably prevent that.

      Printed matter, such as HNH's leaflets and newspapers, is often zero-rated anyway. Certain appeal leaflets would not be zero-rated under the general rule but are covered by the charity zero-rating provisions. HNH Educational might have qualified for zero-rating under that provision – I have no idea – but it would be legitimate.

  5. Well I really do have to thank you for this article, I will be sure to use it wherever possible to try and make some people far less stupid than they have been.

  6. Sorry. I forgot to pass this along. Marina O'Neill who has held departmental titles, including 'Tackling Extremism and Hate Crime Team' and 'Antisemitic & Anti Muslim Hate Crime' (Marina.o' answered my FOI regarding the seeming untruth that they denied funding of HNH due to:

    "Searchlight Educational Trust subsequently changed their name to Hope Not Hate Educational Ltd. As the funding agreement and all other documents in the name of Searchlight Educational Trust, was a separate legal entity to Hope Not Hate, none of the info we held fell into the scope of your original request. We were unaware until you drew this to our attention that Searchlight Educational Trust subsequent name change meant our funding showed up in accounts filed under their new name. "

    So in effect yes, the Conservative led coalition has given public funds to a political organisation whose main current activity is directed towards targeting a rival political party in the run up to elections.