Following input from the Charity Tax Group and Stewardship, HMRC has changed its interpretation of some long-held views in relation to Gift Aid.
For a donation eligible for Gift Aid, the law states that it has to be “a payment of a sum of money”. As a result, the tax man has for many years said that where a lender to charity waives a right to repayment, this does not qualify for Gift Aid because there is no payment of a sum of money at the time of waiver. For Gift Aid to apply, the loan would need to be repaid and the lender would then have to make a fresh donation back to the charity. This has meant that charities have been vulnerable to losing funds if the donation back is not made, or is not made in full.
Equally, where someone has paid to attend an event, such as a Bible Week or conference, and then this is cancelled, if the purchaser waives their right to repayment, this would not qualify as a Gift Aid donation. During the pandemic, many events have been cancelled and it was pleasing that HMRC agreed to make a temporary easement to allow event fees that were donated to the host charity to be Gift Aided.
HMRC has now agreed to make that change permanent and has further agreed that all forms of loan waivers can potentially qualify as Gift Aid donations. They have set some ground rules around this in new guidance published at the beginning of May. In addition to the normal Gift Aid rules, to qualify, a waived loan or refund will need a record of a formal waiver held by the charity.
For small amounts, this could be:
- an email exchange
- a letter out to the taxpayer and their response
- a recorded telephone call
For larger amounts, HMRC will be looking for a legally enforceable document to be in place that includes details of what is being waived and make it expressly clear that the lender is giving up all legal rights to any future repayment and confirms that the amount waived is to be treated as a donation for Gift Aid purposes.
HMRC expects the charity to explain to the individual that they have a choice between 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 and the individual must positively choose to waive their right.
As this is a change in Revenue interpretation, it can apply to existing loans which are subsequently waived. The donation will be considered to have been made at the date of the waiver and not the date of the original payment.
Comment: This change in Revenue practice offers charities, and churches in particular, opportunities to increase their income and to obtain Gift Aid repayments in situations where it was not previously possible. Examples include interest free loans obtained from members as part of capital appeals such as during a building project, loans where a potential donor is not yet sure if they can gift a large sum but may do so in the future and large gifts that the donor needs to be spread over several tax years in order for them to have sufficient tax to cover the (Gift Aid) donations.
There is no technical reason, so far as we can see, why partial waivers of a loan repayment or cancelled event fee cannot be included in these new rules.
Churches, charities and donors should consider now what opportunities exist to take advantage of this wider interpretation.
Good news but what is a small amount and what is a larger amount?
That is a very good question and one that we have asked HMRC to clarify. We are currently working with HMRC's Policy and Technical Teams on this and a number of other issues in relation to the announcement. At the moment, it seems that 'small' applies to waived refunds of event tickets only. Loan waivers would not come within this category although I cannot imaging HMRC taking issue with a very small loan waiver that had less that legally enforceable documentation but was nevertheless clear as to the intention of all parties.
We are discussing the guidance and possible amendments to it and also the possibility of model documentation for loan waivers that most charities and their donors could use without the need to involve a solicitor.
Discussions are ongoing.