Is VAT included in provisional assessment cap?
At the panel session of last week’s Association of Costs Lawyers’ Annual Conference I was surprised when one delegate seriously asked if the £75,000 figure for provisional assessment included or excluded VAT.
However, my gast was truly flabbered when Regional Costs Judge Simon Middleton expressed the firm view that it excluded VAT (meaning he provisionally assesses bill well in excess of £75,000) and none of the other panel members contradicted him.
His reasoning appeared to be by reference to the definitions under CPR 44.1:
“‘costs’ includes fees, charges, disbursements, expenses, remuneration, reimbursement allowed to a litigant in person under rule 46.5 and any fee or reward charged by a lay representative for acting on behalf of a party in proceedings allocated to the small claims track”
As VAT is not mentioned, he concludes it is therefore not an item of costs.
If this is true, on what basis does a party who has a successful costs order in their favour recover VAT? Surely you would also need a specific order awarding VAT in addition to costs. Where a deemed order for costs is made (following acceptance of a Part 36 offer, for example) there would never be such an order for VAT in addition (CPR 44.9 is entirely silent as to any entitlement to VAT).
I’ve been known to advance some optimistic arguments in my time, but even I would struggle to keep a straight face defending Points of Dispute that read:
“The Defendant notes the claim in the Bill of Costs for VAT. The final order is: ‘The Defendant do pay the Claimant’s costs of this action to be assessed if not agreed’. There is no separate order for the Defendant to pay VAT and the Court accordingly has no jurisdiction to assess or allow VAT. Disallow VAT.”
It also makes a nonsense of certain parts of PD 44:
“2.2 The number allocated by HMRC to every person registered under the Value Added Tax Act 1994 (except a Government Department) must appear in a prominent place at the head of every statement, bill of costs, fee sheet, account or voucher on which VAT is being included as part of a claim for costs.
2.3 VAT should not be included in a claim for costs if the receiving party is able to recover the VAT as input tax. Where the receiving party is able to obtain credit from HMRC for a proportion of the VAT as input tax, only that proportion which is not eligible for credit should be included in the claim for costs.”
Why the express reference to VAT being included “as part of a claim for costs” and “included in the claim for costs” if VAT is separate from costs?
I also note that Cook on Costs 2015, that DJ Middleton co-authors, states:
“Form H also stipulates that certain costs are specifically excluded from the budget. These are set out on page 1 of Precedent H and are VAT (where applicable)…”.
Why would this need to be mentioned if VAT is not a head of “cost”?
I’m sorry, but VAT is an element of costs (CPR 44.1 containing a non-exhaustive list of elements included within the definition, not an exhaustive one) and the £75,000 provisional assessment cap includes any VAT claimed.