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Legal Fees and VAT

VAT on legal dispute

One of my clients works from home; part of the grounds are given over to large outhouses for the sakekeeping of his stock in trade, LED lighting. There is one driveway to my client's PPR and the outhouses and he needs to keep the driveway clear of blockages for easy access, in and out, of the stock.

He has a neighbour and a dispute has arisen; the neighbour claims he has the right of access his property using my client's driveway. My client disputes this and the matter has been referred to solicitors by both parties and sizeable legal bills have accrued. I am attempting to decide the extent to which a) the legal fees incurred by my client may be treated as an allowable business expense, or a percentage thereof (do they meet the wholly and exclusively test?) and b) the extent to which the VAT on the fees, or a percentage thereof, may be reclaimed.

 

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06th Dec 2018 11:51

Stephen6 wrote:

I am attempting to decide the extent to which a) the legal fees incurred by my client may be treated as an allowable business expense, or a percentage thereof (do they meet the wholly and exclusively test?) and b) the extent to which the VAT on the fees, or a percentage thereof, may be reclaimed.

Could you set out your thinking, research and conclusion so we can critique?

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06th Dec 2018 11:55

Sole trader or company?
If company, is there a lease between freeholder and company?

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06th Dec 2018 22:35

How are you treating all other costs associated with the outhouses and access? Are the outhouses only used for business purposes?

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to the_drookit_dug
07th Dec 2018 09:15

the_drookit_dug wrote:

How are you treating all other costs associated with the outhouses and access? Are the outhouses only used for business purposes?


Thanks for the responses. The client operates as a sole trader and the outhouses are used exclusively for business purposes i.e stock storage. My feeling is that a reasonable apportionment of the legal costs, to acknowledge the mixed use business/private elements of the driveway, would be a reasonable approach to this.
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to Stephen6
07th Dec 2018 12:51

Stephen6 wrote:

My feeling is that a reasonable apportionment of the legal costs, to acknowledge the mixed use business/private elements of the driveway, would be a reasonable approach to this.

How have you managed to disapply the usual "wholly and exclusively" requirement?

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09th Dec 2018 10:48

Thank you for your assistance Accountant A. It is appreciated. You've made a significant contribution.

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