VAT and third party legal expenses

VAT and third party legal expenses

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An employer client agrees as settlement with an employee for t termination of employment. Part of the agreement stipulates that the employer will pay the employees legal costs plus VAT. Can the employer recover the VAT paid on behalf of the employee i.e. the VAT incurred by the employee for legal advice?

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Portia profile image
By Portia Nina Levin
20th Jan 2015 14:25

No

This is fairly standard for compromise agreements. Surprisingly, solicitors frequently advise to the contrary and will raise invoices in the name of the employer. See http://www.hmrc.gov.uk/manuals/vatscmanual/VATSC91400.htm

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paddle steamer
By DJKL
20th Jan 2015 14:42

Similar with banks and securities

You get similar with banks when setting up loan facilities/ standard securities etc.

The borrower often pays the bank's legal fee plus their own legal fees. Those from their own solicitor are addressed to them and vat is potentially capable of reclaim, that from the bank's solicitor will be addressed to the bank (the party who instructed them and to whom they owe a duty of care) and the borrower, whilst paying the invoice, cannot reclaim the vat on same.

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