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