A client was taken to court for non payment of invoices which they were disputing. Unfortunately they lost and had to pay the bill plus the costs of the other side. Costs were in excess of £5,500 for the other sides solicitors. Client has written to the solicitors asking for a VAT invoice but been told he can't have one as they're not his costs. I assume this is usual and that we just have to write the costs off gross as legal fees - which presumably therefore are also not allowable for tax purposes ? thanks
The solicitor's refusal to issue a VAT invoice to your client is correct as they have not supplied any services to your client. However, this guidance on the HM Revenue & Customs website states that, if the other party is VAT registered, it would be normal for both sides to agree that the other party would reclaim VAT on their legal costs (as presumably they have received a VAT invoice from their solicitor) and your client would just pay the net costs.
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Pearce & Co - Chartered Accountant and Chartered Tax Adviser
