Find out more on the different cases where you may be able to recover the VAT when you have paid somebody else’s costs by reading our latest blog.
If you pay for another person’s costs, you can’t recover the VAT on these expenses because it is not intended for your business, here are some examples:
• A tenant wants to assign a lease and the landlord makes them pay for their legal costs
• A business that loses a court case and is made to pay for the other party’s costs
• A business would need to pay for an accountants input if the bank providing a loan to them sought their opinion
Just because you have paid for these expenses does not mean it is for the purpose of your business. Although you have legally had to pay for such costs it does not mean you are able to deduct the input tax.
If a legal case was lost and the costs of the opposition needed to be paid for, the VAT would not be recoverable in this case. If the opponent is VAT registered and the case were to involve a business dispute, the loser can recover the VAT for the cost of the lawyers.
VAT is not recoverable when legal costs are paid for when a business wishes to assign their rented premises to another business because they no longer require it. The legal services were provided to the landlord, hence the VAT is irrecoverable.
A legal case where input VAT could be recovered was Cloud Electronics Holdings Ltd v HMRC (2012). Cloud Electronics claimed input VAT that was related to professional fees before incorporation. HMRC argued that the claimed VAT was related to advice commissioned by the management buyout team and had not been made for the purpose of the business.
However, Cloud electronics argued that they were the party to receive the benefit of the service and because they paid for it, they should be able to reclaim the input VAT. This case concluded that Cloud Electronics had in fact received he benefit of the services, and the VAT was recoverable.
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