Input tax on legal fees linked to freezing order

HMRC issued personal liability notices (PLNs) against the taxpayer for civil evasion and dishonest behaviour penalties relevant to two overseas companies that he was allegedly involved with as a shadow director. The companies failed to register and pay VAT on imported goods subject to excise duty.

The penalties exceeded £34m and a freezing injunction was in place on his personal assets for £22.75m.

The issue was whether input tax could be claimed by the taxpayer’s VAT-registered sole trader property holding business on legal fees incurred between March and November 2017.

The taxpayer’s representative said the property business could not be ‘operated or expanded without a variation’ to the freezing injunction. He referred to two proposed property deals that could not be carried out because of it. HMRC said the expenditure had no link to his VAT-registered business. The purpose of the fees was to establish that the overseas companies were...