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”.
HMRC had previously introduced a temporary concession in April 2020.
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.
The Charity Tax Group (CTG), which has been pushing for the reforms since April last year, said that they were a “practical solution” to help charities manage financial challenges resulting from Covid-19.
Under the new rules, if an individual chooses not to claim a refund after paying to attend a charity event which was subsequently cancelled, the value of that refund will be treated as a donation and will therefore be eligible for Gift Aid.
The same will be applied if an individual makes a loan to a charity and waives repayment.
HMRC said that for relatively small amounts 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
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.
HMRC also told charities that they need, in all cases, to explain the options available to donors and that individuals “must positively choose to waive their right”.