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3rd Party Solicitor Legal Fees - VAT

Discussion in 'Accounts & Finance' started by caldie, Sep 10, 2008.

  1. caldie

    caldie UKBF Newcomer Free Member

    Posts: 22 Likes: 2

    I recently took on a sub-lease and as such have incurred a legal fee from the landlord for the 'work' that their solicitor carried out in transferring the necessary documentation into my company name.

    I have now received said invoice and their is a VAT element included, can I reclaim this in my VAT return?

    thanks in advance
    Posted: Sep 10, 2008 By: caldie Member since: Oct 27, 2007
  2. Jaydee

    Jaydee UKBF Enthusiast Free Member

    Posts: 982 Likes: 250
    Very unlikely

    I suspect that you will find that their invoice is addressed to the other party but marked as payable by you - so you would not hold a valid VAT invoice to facilitate a reclaim.
    Last edited: Sep 10, 2008
    Posted: Sep 10, 2008 By: Jaydee Member since: May 27, 2007
  3. Donna M

    Donna M UKBF Newcomer Free Member

    Posts: 42 Likes: 2
    Accounts rules for solicitors require the solicitor to make his vat invoice for third party legal costs out to the client.

    As Jaydee has already said, you would not be able to reclaim the vat element of the invoice as it is not made out to you.

    Where a third party agrees to meet the payment of a solicitors client's legal costs, the taxable supply must be made to the client & not the third party.
    Posted: Sep 10, 2008 By: Donna M Member since: Mar 20, 2008
  4. davebrown

    davebrown UKBF Contributor Free Member

    Posts: 38 Likes: 4
    One minor point to add - if the landlord is VAT registered, he might be able to reclaim the VAT himself, which means that you would only have to reimburse the net amount.
    Posted: Sep 15, 2008 By: davebrown Member since: Jun 15, 2008
  5. Alison Jones

    Alison Jones UKBF Newcomer Free Member

    Posts: 902 Likes: 150
    We are in a similar situation to you "Caldie" where we are a new start business and have paid the legal expenses of the landlord on the premises we are leasing. It would be interesting to know how you got on as we are considering asking the landlord to credit us the VAT portion of the legal expenses.


    Posted: Nov 2, 2008 By: Alison Jones Member since: Mar 14, 2008
  6. yorkshirejames

    yorkshirejames UKBF Ace Free Member

    Posts: 2,570 Likes: 352
    Could you ask the solicitor to issue a receipt/VAT invoice to yourself?
    Posted: Nov 5, 2008 By: yorkshirejames Member since: Mar 2, 2006
  7. spidersong

    spidersong UKBF Newcomer Free Member

    Posts: 174 Likes: 90
    Even if the invoice was made accross, you would still be unable to claim it.

    VAT law only allows recovery of VAT on supplies you receive in the course of your business. If you pay for something received by a third party it's not your input tax and not recoverable even if the invoice is made out to you (Goods despatched by your supplier to your customer do not fall under this description as you will still have received title to the goods even if this has immediately passed to your cusatomer without you physically seeing the goods).

    All though you may have incured the cost from the solicitor in the course of business, you haven't actually received a supply in the course of your business from the solicitor, only from the landlord.
    Posted: Nov 5, 2008 By: spidersong Member since: Aug 20, 2008
  8. DIY Accounting

    DIY Accounting UKBF Newcomer Free Member

    Posts: 701 Likes: 129
    If the landlord is vat registered then request the landlord issues you with a vat invoice.

    If the landlord is not vat registered, they would invoice you without vat but the total would include the vat and be a business cost not recoverable against vat.
    If this is the case request the solicitor invoices you direct so the vat can be reclaimed.
    Posted: Nov 5, 2008 By: DIY Accounting Member since: Oct 4, 2007
  9. spidersong

    spidersong UKBF Newcomer Free Member

    Posts: 174 Likes: 90

    Having an invoice made out to you is all well and good but how does this sit with the law though?

    Sec 24 VAT Act 1994 defines input tax as (for a taxable person) "VAT on the supply to him of any goods or services"

    Sec 26 resticts the recovery of VAT to 'Input Tax'.

    The tennant hasn't received a supply from the solicitor, they've received a supply from the landlord, of a lease, unless the option to tax has been exercised then this is an exempt supply (or unless it's a long lease on a new building), and as the solicitor has not made a supply to the tenant the VAT charged is not Input Tax.

    The law doesn't just require that you hold an invoice, it requires you to receive a supply.

    Section 4.1 of HMRC's notice on the 'ins and outs of VAT' says what Input tax is and says that "It does not include VAT paid on goods or services for someone else's business". The solicitors fees are incured by the landlord in the course of his business of letting to the tenant not the tenants business. They are possibly a cost component of the landlords supply but not a supply by the landlord.

    Tolley's 'Value Added Tax' has this to say on the matter "Where a third party pays for goods or services which are supplied to another person, the third party does not have the right to deduct input tax...Examples of where this is likely to occur include - payments of a landlords costs by a tenant for the drawing up of a lease." and this paragraph is an almost direct lift from para 7.1 of HMRC's internal manual V1-13 'Input Tax'.

    Customs argue that the decision in 'Redrow' is not relevant to cases such as this, and that the landlord and tenant can't be seen as joint recipients of the supply, especially as the solicitor is instructed and retained only by the landlord with the tenant having no say in the provision of the service.
    Posted: Nov 5, 2008 By: spidersong Member since: Aug 20, 2008
  10. DIY Accounting

    DIY Accounting UKBF Newcomer Free Member

    Posts: 701 Likes: 129
    I wouldn't want to get into all this technical mish mash.
    I would simply say if there is a deal and the tennant agrees to pay certain costs then those costs represent a taxable supply to producing the deal. FULL STOP
    Posted: Nov 5, 2008 By: DIY Accounting Member since: Oct 4, 2007