Donations to charity were not qualifying

John Harvey a wealthy businessman was the shareholder and director of Keswick Enterprises Group Ltd (KEGL) and the founder of KEH a charitable trust. There was no dispute that he and KEGL were ‘connected persons’ and that he had control over the company. Mr Harvey had made significant loans to the company and it repaid these by reducing his director’s loan account. He has also made large donations to the charity.

In 2016 the company repaid £200 000 to Mr Harvey (a part of his director’s loan account) then he donated £200 000 to the charity which lent the company £200 000 on commercial terms.

The charity claimed gift aid claim on the donations and Mr Harvey claimed gift relief in his tax return. HMRC at first considered the donations were tainted (ITA 2007 s 809ZJ) but later revised this to say they...