A taxpayer’s company has won its case at the Court of Appeal (CoA) regarding the reclaim of input VAT on solicitor services provided to the individual and the company.  The taxpayer had won the case at the First-tier Tribunal but the Upper Tribunal had reversed that decision.  A majority of the CoA has now found for the taxpayer.

The taxpayer was a finance systems consultant and was previously employed by another company.  He left that company to set up his own company and some other employees of the old company joined him in this new venture.  The old company sued him for breach of fiduciary duty and the taxpayer appointed solicitors to help with the litigation.  Ultimately the claim brough by the old employer was unsuccessful.  The old employer was looking to claim some of the profits that the new company had earned but for some reason the only party to the case of liability was the taxpayer.  It was expected by the claimant that when liability was established that the new company would join the litigation.  As liability wasn’t established the new company never joined the legal proceedings.  Therefore, the solicitors could only issue invoices to the taxpayer and not the company that he had established.

The company claimed in the input tax on the invoices issued to the taxpayer by the solicitors, but HMRC stated that this wasn’t correct and raised an assessment that led to the litigation, this time tax related.  A majority of the CoA found that there was a sufficient link between the services provided by the solicitors and the company’s taxable activities.  The company had only been left out of legal proceedings due to a technical matter but would have joined the proceedings if the liability had been established and would have ultimately settled any liability, as opposed the taxpayer.

The decision can be found at: Praesto Consulting UK Ltd v HM Revenue and Customs – Find case law (nationalarchives.gov.uk)

Please do contact if you are uncertain whether VAT can be reclaimed.  In the ordinary course VAT invoices from supplies should be addressed the person or entity that is consuming the goods or services but sometime the lines can blur.  We can help unblur those lines.