Input tax on legal fees concerning criminal charges can be deducted only if incurred for the purpose of the business. To satisfy this ‘purpose’ test, there must normally be a direct connection between the substance of the legal action and the activities of the business.

The leading case in relation to the recovery of VAT incurred on legal fees is Rosner [1994] BVC 31 which is discussed at ¶19-030. This case established the principle that there is a distinction between business ‘purpose’ and business ‘benefit’.

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