Value Added Tax

Input tax ― legal and accountancy fees and insurance claims

Produced by Tolley
  • 16 May 2022 05:16

The following Value Added Tax guidance note Produced by Tolley provides comprehensive and up to date tax information covering:

  • Input tax ― legal and accountancy fees and insurance claims
  • Legal, accountancy and other professional fees
  • Legal fees
  • Accountancy fees
  • Input tax and insurance claims
  • Practical points ― legal and accountancy fees and insurance claims

Input tax ― legal and accountancy fees and insurance claims

This guidance note looks at the input tax implications of legal and accountancy fees and of making insurance claims.

For an overview of input tax more broadly, see the Input tax ― overview guidance note.

For in-depth commentary on the legislation and case law on input tax, see De Voil Indirect Tax Service V3.4.

Legal, accountancy and other professional fees

VAT recovery on legal, accountancy and other professional fees is a common area of focus for HMRC. A key question to ask before recovering VAT is whether the VAT incurred on these kinds of costs is really ‘input tax’. In other words, is the expenditure for the purposes of the business?

There are specific challenges when professional fees are incurred in relation to holding companies (particularly with regard to acquisitions, disposals and restructures) and these are covered separately in the Holding companies ― overview guidance note.

Similarly, the VAT recovery position where professional fees are incurred as part of a transfer of a business as a going concern (TOGC) is covered separately in the TOGC ― VAT recovery guidance note.

The position in respect of legal and accountancy fees more generally is considered below.

Legal fees

To determine whether VAT incurred on legal fees is input tax, a key question is whether the legal expenses have been incurred for the purposes of the business or in a personal capacity for the taxpayer or an employee of the taxpayer.

HMRC takes the view that VAT incurred on legal fees in

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