Supplies benefit company

Input tax on legal fees incurred by company director

The director of the company used to work for CSP. He left to set up his own company Praesto Consulting UK Ltd (the taxpayer). This traded in direct competition with CSP and took over many of its clients. CSP started legal proceedings against the director alleging he had breached his contract of employment in setting up the new company.

Praesto claimed input tax on the fees charged by the solicitor (S) defending R. HMRC disallowed the claim on the basis that the supply of services was to R not the company.

The company said a successful legal outcome for CSP would have resulted in a claim against the profits of Praesto made in relation to work for former CSP clients. It was therefore relevant to the company as well as the individual.

The First-tier Tribunal found that S...