The Charity Tax Group has welcomed recent updates to HMRC guidance on loan waivers and loan repayments, which clarify the requirements for each to be considered a qualifying donation for Gift Aid relief.
The changes follow ‘extensive consultation’ between the sector body’s representatives and HMRC. Overall, the Charity Tax Group said the new text (in sections 3.13 and 3.45 of the guidance), is ‘much improved and clearer’, although in one section it said the original text had been clearer. Its full response can be read here.
During the pandemic, the cancellation of many charity events prompted the Charity Tax Group to write to Treasury Ministers requesting for donors to be able to convert their tickets to donations that could have Gift Aid applied. A temporary concession came in in April 2020. This change has since become permanent, meaning that waivers of refunds and repayment 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’.
In Chapter 3.13 Qualifying charitable donations and restrictions on Gift Aid treatment, the guidance explains that, with some exceptions:
If individual or company waives a refund or loan repayment, it can be considered a donation (of a sum of money) providing there is a clear agreement either to:
- cancel a loan
- not accept a refund
CTG’s only criticism of the wording in this section was over HMRC’s amended wording to one of the exceptions – “it’s conditional on repayment” – which is says is not useful and could be clearer.
‘The original wording that “A payment is not a qualifying donation if … it is made subject to a condition as to repayment” is rather clearer. For example, the new wording does not make it crystal clear that if a charity appeal for funds states that “if insufficient funds are raised, donations will be returned to donors”, those donations will not be eligible for Gift Aid from the outset.’
Chapter 3.45, Claiming Gift Aid on waived refunds and loan repayments, explains that HMRC will consider donations made from a waiver of a right to either a refund or loan repayment to be eligible for Gift Aid, provided the charity meets both of two conditions:
- the charity holds a record of the waiver
- it meets all other Gift Aid rules including the requirement for a payment of a sum of money
It states clearly that:
Where a person is entitled to a refund, HMRC expects charities to explain clearly that they can choose between either:
- obtaining a full refund
- waiving their right to a refund (in whole or part) and having their payment classed as a qualifying donation
It also says that: Charities must not place any pressure on the person to waive their right to a refund. The person must positively choose to waive their right.
CTG Vice Chair, Kevin Russell said:
“The publication of this revised guidance is very welcome and brings much needed clarity to this relatively new understanding of Gift Aid on waived refunds and loan repayments. We are most grateful to representatives from HMRC for engaging so positively with us on this.”