Input tax on legal fees for the defence of a company director
In Praesto Consulting v HMRC [2016] UKFTT 495 (13 July 2016), the FTT found that a company was entitled to recover input tax incurred in defending civil proceedings brought against its director.
Praesto had paid legal fees in relation to civil proceedings brought against Mr Ranson, its director and founder, by its former employer, CSP, with which it was in competition. The issue was whether Praesto was entitled to credit for input tax on VAT charged by Sintons, the law firm conducting the litigation.
The FTT found that both Mr Ranson and Praesto had been clients of Sintons; the input tax had been incurred in relation to legal services supplied to Praesto. The fact that Praesto was not a party in the trial on liability did not affect that conclusion. Praesto had made the profits from any breach of duty by Mr Ranson and Praesto’s profits would have to be accounted for, either by Mr Ranson or by Praesto itself, if CSP’s claim was successful.
Praesto therefore had a direct interest in CSP’s claim being dismissed, so that the link between the supplies and Praesto’s taxable activities was sufficiently direct and immediate to entitle it to the input tax credit; the supplies had been made for the purpose of its business.
Why it matters: The FTT pointed out that ‘there must be something more than a benefit to the taxable person’. In Becker (Case C-104/12), the company had not been a party to the criminal proceedings against its director, although it would have benefited if its director had been acquitted, whilst Praesto could be viewed as a party to the proceedings ‘in all but name’.
Input tax on legal fees for the defence of a company director
In Praesto Consulting v HMRC [2016] UKFTT 495 (13 July 2016), the FTT found that a company was entitled to recover input tax incurred in defending civil proceedings brought against its director.
Praesto had paid legal fees in relation to civil proceedings brought against Mr Ranson, its director and founder, by its former employer, CSP, with which it was in competition. The issue was whether Praesto was entitled to credit for input tax on VAT charged by Sintons, the law firm conducting the litigation.
The FTT found that both Mr Ranson and Praesto had been clients of Sintons; the input tax had been incurred in relation to legal services supplied to Praesto. The fact that Praesto was not a party in the trial on liability did not affect that conclusion. Praesto had made the profits from any breach of duty by Mr Ranson and Praesto’s profits would have to be accounted for, either by Mr Ranson or by Praesto itself, if CSP’s claim was successful.
Praesto therefore had a direct interest in CSP’s claim being dismissed, so that the link between the supplies and Praesto’s taxable activities was sufficiently direct and immediate to entitle it to the input tax credit; the supplies had been made for the purpose of its business.
Why it matters: The FTT pointed out that ‘there must be something more than a benefit to the taxable person’. In Becker (Case C-104/12), the company had not been a party to the criminal proceedings against its director, although it would have benefited if its director had been acquitted, whilst Praesto could be viewed as a party to the proceedings ‘in all but name’.
