Relief denied because LLP not trading

The taxpayer was set up to develop the rights to exploit transdermal patch technology for the delivery of medications from NDM. The LLP entered into a framework agreement to subcontract research and development (R&D) work related to that technology to NPL-Sub. It paid £8m to NPL-Sub for the R&D work 74% of which was funded by members’ contributions and the rest from a limited recourse loan.

NPL-Sub lent 74% of those funds to the party that had made the limited recourse loan to the LLP. It then paid another part of those funds and assigned some debts to NPL a company related to NDM to conduct the actual R&D work. It was agreed that any intellectual property rights and results from the R&D would vest in NDM not the LLP.

The LLP claimed the £8m expenditure incurred under the framework agreement with NPL-Sub as tax deductible...