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.
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Kevin Russell
Kevin is one of Stewardship’s leading team of technical experts with over 25 years of experience of helping churches and Christian charities maximise their potential. His expertise and knowledge is sought not only by charitable organisations but by Government, the Charity Commission and HMRC, helping to solve complex tax and charity law problems.
Prior to working for Stewardship, Kevin had a wide range of business, charity and teaching experience and is a qualified chartered accountant, and a chartered tax advisor. At PwC he was a Senior Tax Consultant assisting medium and large businesses in all aspects of their tax affairs. Also a lecturer in the Business School at Middlesex University and Principal of his own Chartered Accountancy practice.
Kevin is Vice Chair of the Charity Tax Group and Chair of CTG’s Gift Aid & Giving Technical Group. He represents the Christian church on HMRC’s Charity Tax Forum and advocate for the sector to Government, the Charity Commission and HMRC.
Currently a trustee of the UK arm of an international charity that inspires people to discover Jesus for themselves. Past roles include church deacon, trustee and auditor and he has helped set up two church plants.
Kevin and his wife Carol have 3 adult children and one grandchild. They attend Grace Church, Highlands in North London.
Causes close to Kevin and Carol’s hearts are those working directly with the homeless, with drug addicts, and women in prostitution. Organisations working in evangelism amongst young people, in family life and demonstrating Christian love in action in the public sphere.
Comments
Loan Wavers
Good news but what is a small amount and what is a larger amount?
@Jonathan. That is a very…
@Jonathan.
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.
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