HMRC has issued guidance confirming that Gift Aid can be claimed on Waived Refunds and Loan Repayments. Previously a waiver of debt was not regarded as permissible for Gift Aid, without funds being returned to a donor first, as Gift Aid requires a “payment of a sum of money”.
In response to the cancellation of many charity events as a result of COVID-19, the Charity Tax Group wrote to Treasury Ministers requesting that donors be allowed to convert their tickets to donations that could have Gift Aid applied. HMRC agreed and introduced a temporary concession in April 2020. This was a practical solution to unlock important tax reliefs for charities at a time when charity cashflow was under serious strain.
HMRC has now confirmed that it will be making this change in view permanent, so that any such waivers of refunds, including waivers of loans to charities, can count as donations to which Gift Aid can apply, provided the agreement to waive the loan/right to a refund is clear and irrevocable.
Chapter 3.45 Claiming Gift Aid on Waived Refunds and Loan Repayments
3.45.1 HMRC will consider donations made from a waiver of a right to either a refund or loan repayment to be eligible for Gift Aid. This is provided there is a record of a formal waiver held by the charity and all other Gift Aid rules are met. The donation will be considered to have been made at the date of the waiver and not the date of the original payment. A Gift Aid declaration will need to be collected by the charity if one is not already held for the donor.
3.45.2 What HMRC considers to be a formal waiver depends on the amount being waived. For a small amount, for example a couple of tickets to a fund-raising event, which has been cancelled. The charity should keep an auditable record of correspondence between the charity and the taxpayer, confirming that no refund is required and that this amount is to be treated as a donation. Examples of this correspondence could include:
- an email exchange
- a letter out to the taxpayer and their response
- a recorded telephone call
3.45.3 Where the amount being waived is more than a nominal amount, such as a loan repayment, HMRC would expect there to be a legally enforceable document in place. Amongst other things, the document should include:
- details of what is being waived (make it expressly clear that the lender is giving up all legal rights to any future repayment)
- confirmation the amount waived is to be treated as a donation for Gift Aid
The charity must keep a copy of this document for audit purposes and all other Gift Aid rules should be adhered to.
3.45.4 In all circumstances, HMRC expects the charity to explain clearly to the individual that they have a choice between obtaining a full refund or waiving the right to a refund and have this classed as a qualifying donation. There must be no pressure placed on the individual to waive their right to a refund. The individual must positively choose to waive their right.
3.45.5 The individual must ensure that they have paid sufficient tax to cover their donation, for the year in which the donation is deemed to be made.