Issue 12: VAT on Legal Fees
It is quite common for a business to pay the expenses incurred by a third party.
Imagine you are moving into your business premises and as part of the negotiation for the lease you agree to pay the landlord’s legal expenses. Now you are thinking “that’s a small price to pay for such a fabulous building plus I can recover the VAT”. WRONG!
Remember, one of the basic VAT rule is who is the legal services being supplied to? In this instance it’s the landlord, so you my friend cannot recover the VAT even though you are the one that paid it. Don’t cry because I bear glad tidings.
Assuming that the landlord is VAT registered and the rent they are charging you is standard rated, this is how you get out of that trap:
Get the solicitor to send you the bill with just the net amount and ask them to send a VAT only invoice to the landlord. Simples.
What that does is you only pay the net legal fees and the landlord recovers the VAT. Just always be aware of any transactions that involve three parties.
I am Marlon “Mr. VAT” Appleton