At the outset of the coronavirus pandemic, many charities were forced to cancel fundraising events, but supporters often waived their right to a refund. To provide additional support to the sector, HMRC rapidly introduced a temporary concession to allow charities to claim Gift Aid on waived refunds or loan repayments. Following lobbying by the Charity Tax Group and others, this concession has now been made permanent.
There are a few conditions to be satisfied to obtain the relief. For example, as well as satisfying all Gift Aid rules, there must be a record of a formal waiver held by the charity. The donation will be treated as made at the date of the formal waiver and not the date of the original payment. A Gift Aid declaration will need to be collected by the charity if one is not already held for the donor concerned.
What is a formal waiver?
HMRC has provided examples of what will be considered to be a ‘formal waiver’ in different scenarios.
HMRC’s approach for smaller amounts, for example where someone who has purchased a couple of tickets to a cancelled fundraising event does not require a refund, is that the charity should keep an auditable record of correspondence between the charity and the taxpayer. The record should confirm that no refund is required and that this amount is to be treated as a donation. HMRC’s guidance explains that examples of this correspondence could include an email exchange, letters to and from the taxpayer, or a recorded phone call.
However, where the amount being waived is more significant, for example the waiving of a loan repayment, HMRC has explained that it would expect there to be a legally enforceable document in place. The document should include, amongst other things, details of what is being waived. It should also make it expressly clear that the lender is giving up all legal rights to future repayment and confirm the amount to be waived is to be treated as a donation eligible for Gift Aid. The charity must keep a copy of this document.
In all of these circumstances, HMRC makes it clear that charities must explain clearly to the individual that they have a choice between obtaining a full refund or waiving the right to a refund and having this classed as a qualifying (Gift Aid) donation. The individual donor must positively choose to waive their right to a refund and no pressure must be placed on them to do so. The individual must also ensure that they have paid sufficient tax to cover their Gift Aid donation in the tax year in which the donation is deemed to be made.
Birketts has a specialist tax lawyers with expertise advising charities on tax matters. If you need any advice on anything covered in this article or any other tax matters, please contact Karl Pocock, John Kahn or another member of the Birketts Corporate Tax team.
The content of this article is for general information only. It is not, and should not be taken as, legal advice. If you require any further information in relation to this article please contact the author in the first instance. Law covered as at May 2021.