Q:
We have received an invoice from a solicitor for some work done for us and another company. Their client is the other company but we agreed to pay for the work.
The solicitors have invoiced the other company but have said it is ok for us to pay it and use the invoice for our VAT purposes as the invoice states that it is payable by us even though not addressed to us.
I’ve not come across this before and am reluctant to pay a VAT invoice not addressed to us.
Any advice??
Thanks
A:
Hi SEVAT
Well the issue of paying the invoice is separate to the issue of claiming the VAT back on the invoice.
I don’t know the specifics of your situation (eg what the legal work relates to, the formal terms and conditions etc) but the fundamental rule is as follows:
A business can only claim VAT as input tax on supplies that have been made to them
So even if you pay a bill for services supplied to someone else, the VAT on the invoice isn’t your input tax and you can’t reclaim it. This would even apply if the invoice is issued to you instead of the recipient of the service (ie in your case teh other company).
Normally the person who has received teh supply is the person who has engaged the supplier, ie the solicitor. In this case you have stated that this is the other company. The rules are clearly explained in VAT Notice 700, Section 10, which is here http://tinyurl.com/kus4c8 on the HMRC website.
Now there are certain limited situations where HMRC might accept that more than one party has benefitted from the services of a supplier and allow teh person who pays the bill to treat some or all of the VAT as input tax. But these would be exceptional circumstances that have been tested in the courts and are very rare.
I would suggest that you refer the solicitor to the guidance given in the VAT Notice and see if he can give an explanation of why he thinks your company would be entitled to recover the VAT on a supply made to the other company. He may have a valid reason and I’d be interested to hear if he does! But simply paying the invoice doesn’t allow you to claim the VAT.
However there may be another way of dealing with this. In your case, as the supply in question was made to the other company, they should be able to treat the VAT on the solicitors’ invoice as input tax. This would mean that if you pay the net amount of the invoice, they could pay teh VAT amount and claim it on their VAT return – assuming that they are entitled to under the normal rules (eg they are not partly exempt and thus can only recover a proportion of their input tax).
So this would work as follows:
• If the invoice is for £1000 net plus VAT of £150, you would pay £1000 to the solicitors and they pay £150. So the solicitor receives full payment.
• The other company claims the VAT of £150 on its VAT return, so isn’t out of pocket.
Obviously I don’t know the exact details of your situation but you could propose this to the other company and their solicitor and see if they agree. This way your company would only pay the net amount of the bill but the VAT is claimed by the recipient of the supply.
I’ve used this way of dealing with similar situations in the past and it normally keeps everybody happy, so I hope it helps you sort things out. Let me know how you get on.
Kind regards
Marie