VATon legal costs

[Marleypotts]

Hi All

My clients, a Ltd company firm of Architects, set up their Ltd company when their previous employer did not pay their salaries for 4 months running, so being in breach of contract they decided to leave their employment and set up a Ltd company.

The previous employer then sued the Ltd company and the directors to get them to stop trading and for damages as he said they had access to his clients and that they would contact them.

The query comes as "wholly and exclusively".
My opinion is the the law suit comes under "wholly and exclusively" as the claimant wanted the Ltd Company shut down, through no fault of the company or the directors.

I have contacted HMRC for non statutory clearance, but they have not submitted a clearance in their reply.
I have also looked at BIM38525, which doesnt seem to offer to much guidance on the matter.

The client has also reclaimed the VAT on the payments to the legal firm representing them.

My query is whether anyone can offer advice on whether they believe the payments to the legal firms are allowable and the input VAT has been correctly reclaimed.

Any advice on the matter would be greatly appreciated.

Many thanks

[Generix]

Hi All

My clients, a Ltd company firm of Architects, set up their Ltd company when their previous employer did not pay their salaries for 4 months running, so being in breach of contract they decided to leave their employment and set up a Ltd company.

The previous employer then sued the Ltd company and the directors to get them to stop trading and for damages as he said they had access to his clients and that they would contact them.

The query comes as "wholly and exclusively".
My opinion is the the law suit comes under "wholly and exclusively" as the claimant wanted the Ltd Company shut down, through no fault of the company or the directors.

I have contacted HMRC for non statutory clearance, but they have not submitted a clearance in their reply.
I have also looked at BIM38525, which doesnt seem to offer to much guidance on the matter.

The client has also reclaimed the VAT on the payments to the legal firm representing them.

My query is whether anyone can offer advice on whether they believe the payments to the legal firms are allowable and the input VAT has been correctly reclaimed.

Any advice on the matter would be greatly appreciated.

Many thanks

I think the wholly and exclusively is a direct tax clause, and not a VAT requirement.

If the Ltd company is being sued then it is recoverable, if the directors are being sued then it is harder to argue - I believe there have been tribunal cases both for and against in these circumstances.

Sounded from your post that it was the Ltd company who was being sued?

Anyway I believe the VAT test is 'for business purposes' and then there is a load of caselaw to trawl through.