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VAT on legal costs

My clients, a Ltd company firm of Architects, set up their Ltd company when their previous employer did not pay their salaries for 4 months running, so being in breach of contract they decided to leave their employment and set up a Ltd company. The previous employer then sued the Ltd company and the directors to get them to stop trading and for damages as he said they had access to his clients and that they would contact them. The query comes as “wholly and exclusively”. My opinion is the law suit comes under “wholly and exclusively” as the claimant wanted the Ltd Company shut down, through no fault of the company or the directors. I have contacted HMRC for non statutory clearance, but they have not submitted a clearance in their reply. I have also looked at BIM38525, which doesn’t seem to offer too much guidance on the matter. The client has also reclaimed the VAT on the payments to the legal firm representing them. My query is whether an UK tax expert can offer advice on whether he believes the payments to the legal firms are allowable and the input VAT has been correctly reclaimed. Any advice on the matter would be greatly appreciated.

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