Recovering VAT on Undefended Expenses

It is always satisfying to have a case that makes a real practical difference to clients now and in the future. And when you get it reported in the Journal of the Law Society of Scotland, it’s an added bonus! This was recently the case in one of our landlord/tenant cases. The decision related to the recoverability (or otherwise) of VAT on expenses from the unsuccessful party.

The case itself was one of six which had been put out for a Hearing by Sheriff Mackie at Edinburgh Sheriff Court. In each case, the Pursuers were not taxable persons in terms of the VAT Act 1994. That is, in each case the Pursuers were not individuals registered under the Act as being taxable, and whose taxable supplies per year were not greater than £85,000. In practical terms, they were individuals not acting as professional landlords. The six actions themselves were unremarkable. Proceedings had been raised, served and were not contested. We had minuted for Decree including scale undefended expenses (ie the standard expenses set by the court) in each case. The expenses sought however included an additional element of VAT.

The Sheriff Clerk had taken exception to this, not recognising the right of an untaxable person to recover VAT on top of the scale undefended expenses. She was not persuaded by our robust arguments and so the six cases were put out for a hearing in front of Sheriff Mackie.

Sheriff Mackie tested our position rigorously. She required to be addressed at length on the Value Added Tax Act 1994, the Finance Act 1972 and the details therein. Thankfully, she agreed with our position in relation to this matter. That is, where the Pursuer in an action is not a taxable person in terms of the Value Added Tax Act 1994, they are entitled to seek expenses including VAT thereon.

So the good news is that landlords who are non-taxable persons and are lucky enough to have properties in Edinburgh, can definitely now recover vat on their legal fees. The sting in the tail, though, is that matters are less clear-cut elsewhere in the country. We had hoped that this decision would provide clarity to Sheriff Clerks offices throughout Scotland. Unfortunately, a number of them currently still refuse to award any elements of VAT when granting Decree in such cases. Their unwillingness to do so is very disappointing given the detailed decision by Sheriff Mackie. But we haven’t given up and hope to have further opportunities to bring this benefit to clients in all parts of the country before too long.

The information and opinions contained in this blog are for information only. They are not intended to constitute advice and should not be relied upon or considered as a replacement for advice. Before acting on any of the information contained in this blog, please seek specific advice from Gilson Gray.