R&D avoidance fails

The taxpayer partnership was established in Jersey. It entered into an agreement under which it paid Numology Ltd £193m to carry out research and development (R&D).

Numology paid £14m to a subcontractor PepTCell to undertake the work and contributed £86m to the taxpayer business.  The partners then claimed loss relief of £193m in respect of R&D capital allowances under CAA 2001 s 437.

HMRC rejected the claim on the basis the taxpayer had not been carrying on a trade. The department also said the arrangement was a sham with only a small amount spent on research.

The partnership appealed. The First-tier Tribunal allowed part of the appeal but dismissed the partners’ claims for relief. The matter escalated to the Upper Tribunal which accepted the partnership had been trading and the arrangements were commercial.

But the judge concluded “on a practical commercial approach” that only...