Waiving a refund or a loan repayment can be considered a donation under Gift Aid rules, HMRC confirms

Charitable donations made by waiving a refund or loan repayment can be considered a donation under Gift Aid rules, HM Revenue & Customs has said.

Updated guidance, which is applicable retrospectively, was published by the government yesterday after discussions with the Charity Tax Group.

The new policy says: “Donations made via the waiving of a refund or loan repayment can be considered a donation of a sum of money where there is a clear agreement to cancel a loan or not accept a refund.”

This replaces a previous statement, which maintained that waiving a loan did not qualify.

It follows a temporary change to the rules by HMRC last year after thousands of charities faced having to refund customers due to attend events cancelled because of the Covid-19 pandemic.

Graham Elliot, a technical adviser to the CTG, welcomed the change in policy.

He said: “The gestation of this change was rooted in Covid-19. When charity performances had to be cancelled, charities asked ticket purchasers to waive the right to a refund.

“Following discussion between the CTG and HMRC, the latter accepted that Gift Aid could apply to waivers, despite the payments not being returned and donated afresh.

“This arose from a legal reinterpretation to the effect that, although a ‘payment in money’ is required by the legislation, the fact that the money was originally paid for another objective did not change the fact that the donation arises from a payment of money having been made.”

Elliot said it was argued that this principle was universally applicable and did not need to be restricted to the period of a pandemic, which HMRC accepted.

“Key to this is that a payment must have arisen in the first place,” he said.

“Waiving rights to payment, such as an author waiving rights to royalties, is not included, as the donor has not made any payment in money.

“But the change in policy greatly facilitates encouraging a lender to commute a loan to an outright gift, for example.

“Waivers are strictly a ‘one-way street’ as there can be no arrangement under which the sum can be returned.”

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