A partnership’s entitlement to capital allowances in a tax avoidance scheme was restricted to the amount actually spent on research and development, and not the higher amounts that taxpayers had contributed to the partnership. 

The appellants were involved in a tax avoidance scheme. In essence, a taxpayer would make contributions into a partnership. Some of that money would come from their own resources, but the bulk would come from borrowings. The sums put into the partnership would be treated as if they were capital expenditure on scientific research into brain disorders in order to attract capital allowances, so the taxpayer could offset those capital allowances (subject to a cap of £25,000) against their own tax liabilities. The money (say £100, less fees) would be treated as spent on scientific research because it went from the partnership to a company (N). However, that company subcontracted the research work to another