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Output VAT on recovery of legal fees

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Company A was instructed to cover the legal costs of Company B. The two companies are not related. If Company B pays the gross amounts of all legal fees and reclaims the VAT since it is a supply relating to the business. When recovering the net amount from Company A, would this generate output VAT or can it classified as a disbursement?

 

 

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Hallerud at Easter
By DJKL
15th Jan 2020 14:48

It surely cannot be a disbursement if company B has reclaimed the input tax on the supplies made to it.

Instructed by whom?

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RLI
By lionofludesch
15th Jan 2020 15:10

There has been no supply between A and B.

No VAT is due. A should just pay B its legal costs before VAT.

Once again "who has supplied what to whom?" is the question which needs to be asked.

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Replying to lionofludesch:
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By Robert1981
15th Jan 2020 16:39

Many thanks. The supply of legal services was to B. Company A is underwriting the legal costs as part of a Right of Light settlement/court hearing.

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Replying to Robert1981:
RLI
By lionofludesch
15th Jan 2020 17:13

Quote:

Many thanks. The supply of legal services was to B. Company A is underwriting the legal costs as part of a Right of Light settlement/court hearing.

Quite. No supply. No VAT.

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