VAT Recovery and Private Costs

In the case of Substantia Invest Ltd, the appellant was a property developer who was appealing HMRC’s decision to reject an input VAT reclaim upwards of £20,000. The costs in question related to legal services incurred for the purpose of defending the appellant’s owner from criminal charges of false accounting. HMRC refused the appellants right to recover the VAT element of these costs as they did not directly relate to the provision of taxable supplies.

The owner is the sole director of Substantia Invest Ltd which was described as a “one man business” during proceedings, and whilst it was in no doubt that the legal services were supplied directly to the owner of the business, HMRC had previously ruled that the services were incurredprimarily to serve the private interests of the owner.

To facilitate input VAT recovery, the goods or services to which it relates must benefit the business, have a direct link to its trading activities and must be used for the purpose of the business.  Further to this, for a business to be able to recover input VAT incurred on legal fees, the offence must be committed in the course of employment.

Upon hearing the arguments presented during the case, the First-Tier Tribunal could not find a direct connection between the legal services supplied and the ongoing provision of taxable supplies by Substantia Invest Ltd.

The recovery of input VAT is always dependent on certain conditions being satisfied. To discuss the validity of costs you or your business wish to recover, phone our free helpline for expert advice.

None
Get in Touch