Denbrae Ltd v HMRC

VAT: Input tax on legal fees

In Denbrae Ltd v HMRC (TC00497 – 18 May) a company (D) registered for VAT in 2001 but failed to account for any output tax between 2002 and 2004. During this period it took legal proceedings against two of its former directors alleging breach of fiduciary duty and misappropriation of funds. The court gave judgment for D and the former directors were ordered to pay costs and damages. D reclaimed input tax on its legal fees. HMRC issued an assessment to recover the tax on the basis that it did not relate to any taxable supplies. D appealed. The Tribunal dismissed the appeal finding that D was not trading during the period to which the legal fees related and holding that 'the litigation was not for the purpose of (D's) economic activities' and that the costs had...