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HMRC internal manual

VAT Input Tax

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Legal history: cases about legal expenses

Please note that the following material is not a full summary of the case - it merely highlights the principle referred to in the appropriate section of this manual.

Anwar (R) VTD 12748

A retailer bought a shareholding in a nursing home. He incurred input tax on solicitor’s fees in connection with a dispute between him and the other shareholders.

The tribunal held that the shareholding was a personal investment rather than a business activity. It also held that there was no real connection or nexus between the legal services and the purposes of the retailer’s business. The taxpayer was therefore not allowed to recover input tax on the solicitor’s fees.

Rosner (FW) (t/a London School of International Business) 1994 STC 228

The taxpayer incurred legal costs in a number of cases. These included one under the Immigration Act 1971 and one involving the negotiation of a compounded penalty to avoid criminal proceedings about evasion of VAT.

The taxpayer argued that the legal costs were incurred for the purpose of his business. He had been liable to imprisonment and, if he had been imprisoned for any length of time, his business may have been forced to close.

The Court held that the fact the business had benefitted from the expenditure was not conclusive since there must be a real connection, a nexus between the expenditure and the business. On the evidence there was no clear nexus. Therefore the legal costs had not been incurred for the purpose of the business and none of the VAT was deductible.