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Title: Why can't I claim VAT on my losses?

Date: 20 March 2014

Question

I own a business selling after-market exhaust systems for high end sports bikes. I had a bike accident just over 18 months ago which ended in a court case last November in the county court. I won and was awarded compensation and costs by the judge. However my claim for compensation was cut short by the judge who did not allow the VAT I would have earned on sales if it wasn’t for the accident. I always charge VAT so surely this is unfair? My opponent is also saying they won’t pay VAT on my solicitor’s costs too! What is going on? Any suggestions to progress this will be gratefully received.

D E, by e-mail

Answer

You have a court order for your compensation and legal costs which is an important starting point and this itself is enforceable in law should the Defendant not pay. It is clearly the case that your business is registered for value added tax (VAT). The judge was right not to award you VAT on sales you would have made but for the accident. Your claim was presumably for the loss you sustained by your inability to make sales. The judge was trying to put you in the position you would have been but for the accident – the important point being the net position you would have been in. Of course the VAT received is which is due for payment to Her Majesty’s Revenue & Customs (HMRC) so this is a not a loss attached to your claim.

In relation to the legal costs, if the Claimant is VAT registered with HMRC he/she/it (if the Claimant is a company) is entitled to reclaim from HMRC the VAT it has paid out. Therefore if you paid your solicitors VAT you can recover it. If your opponent then also paid VAT on the costs you have made a double recovery of the VAT. So it appears your opponent is correct. They need not pay VAT due to the entitlement to recover said monies. All they need to do is pay the costs less then VAT and you can reclaim the VAT you have already paid, meaning everyone is square. I suggest you ask your solicitor or accountant to go into more detail if the above is not clear.

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