Is the VAT on my tax advice recoverable?
March 10, 2017
A topical question at this time of the year and following the decision of the First-tier Tax Tribunal in the case of Doran Bros (London) Ltd. the answer would well be yes.
In this case, a limited company, with a sole director/employee, was denied the ability to recover VAT incurred on advice to enable employees to be rewarded in a tax efficient manner. HMRC argued that this was not a supply for the purpose of the business but was in fact for the personal benefit of the director and therefore the VAT was not deductible.
The Tribunal asked itself 3 questions; to whom was the supply made; what was the expenditure incurred on; and is there a sufficient link to the taxable supplies made by the taxpayer?
In agreeing with the taxpayer, the Tribunal found that the advice was provided to the company for the benefit of the business as it related to tax efficient ways of rewarding employees. Even if, as in this case, there is only one employee who may derive significant personal benefit, the Tribunal could find nothing to distinguish this advice from other advisory services which are accepted as general overheads of the business.
One of the key points here is that from the outset, the advice was provided to the company which was a separate legal entity from the individual. Compare and contrast this with the situation where the engagement letter is in the name of the individual and the firm merely receives and pays the invoice.
As a decision of the First-tier Tribunal it is only binding on the parties involved, but it is a useful starting point to determine whether a supply has been received for the purposes of the business.