New HMRC guidance – claiming Gift Aid on waived refunds and loan repayments

9 June 2021

Last month, HMRC updated its Gift Aid guidance to confirm that the tax relief can now be claimed on refunds and loan repayments that have been waived by the donor. Previously, HMRC did not regard such waivers as being eligible for the scheme unless the funds were returned to the donor beforehand on the basis that, in order to qualify, a donation must involve "payment of a sum of money" to a charity.

The change has come about largely as a result of the large number of charity events that had to be cancelled as a result of Covid-19, following which HMRC introduced a temporary concession that enabled donors to have the sums they had paid for their tickets to be treated as qualifying donations, the idea being to help improve cashflows during what was a difficult time for many charities.

The amended guidance confirms that HMRC is now treating this change as permanent, meaning that all waivers of refunds, including waivers of loans made to a charity, will be regarded as qualifying donations, provided that it can show that there has been a formal waiver of the loan or right to a refund and all of the other Gift Aid rules are met. The donation will be treated as having been made on the date of the waiver, rather than on the date of the original payment.

What HMRC considers to be a "formal waiver" will depend on the amount being waived. For small amounts (the guidance gives the example of a couple of tickets to a cancelled fund-raising event) charities will be expected to keep an auditable record of correspondence with the donor, confirming that no refund is required and that the amount is to be treated as a donation. This might include:

  • an email exchange;
  • a letter to the donor and the donor's written response; or
  • a recorded telephone conversation.

Where more than a nominal amount is being waived (such as a loan repayment), HMRC will expect there to be a legally enforceable document in place including, among other things:

  • details of what is being waived, making it clear that the lender is giving up all legal rights to any future repayment; and
  • confirmation that the amount waived is to be treated as a donation for Gift Aid purposes.

The charity will need to keep a copy of the document for audit purposes.

The guidance makes it clear that, whatever the amounts being waived, HMRC will expect the charity to explain clearly to donors/lenders that they have a choice between obtaining a full refund or waiving the right to a refund/repayment and have it treated as a qualifying donation.  The charity must not pressure donors/lenders into waiving their rights, and the waiver must be made expressly, rather than being inferred.

An overview of the tax exemptions available to charities is available here.

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