VAT and provisional assessment
I’ve commented before on Regional Costs Judge Middleton’s view that the £75,000 provisional assessment limit does not include VAT.
He expands on this in the White Book supplement Costs & Funding following the Civil Justice Reforms: Questions & Answers.
“Q8. Does the £75,000 limit for provisional assessment include or exclude VAT?
This is a purely procedural point. CPR 47.15 and its PD provisions describe the limit of £75,000 as being in respect of costs. The definition of ‘costs’ in CPR 44.1 does not include a reference to VAT – in fact, VAT is defined separately in the same rule. Accordingly, it seems that the £75,000 limit does not include VAT and refers to the total profit costs and disbursement sum.”
CPR 44.1 is actually headed ‘Interpretation and application’ rather than ‘Definitions’.
‘Costs’ is defined as:
“‘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”
‘VAT’ is defined as:
“‘VAT’ means Value Added Tax”
It is actually rather a stretch to say this “defines” VAT. It does no more than explain, if it was not otherwise self-evident, what the abbreviation stands for.
This section also defines ‘fixed costs’:
“‘fixed costs’ means costs the amounts of which are fixed by these rules whether or not the court has a discretion to allow some other or no amount”
I believe this highlights Regional Costs Judge Middleton’s error. There can be no doubt that ‘fixed costs’ falls within the wider definition of ‘costs’ even if it is also given its own separate definition. ‘Fixed costs’ is simply a subcategory of ‘costs’. Equally, ‘VAT’ is also a subcategory of ‘costs’. The definition of ‘costs’ is not an exhaustive list, it simply states some of the subcategories it includes. ‘VAT’ clearly falls within ‘charges’ in any event. HM Revenue & Customs’ guides use the word ‘charge’ in relation to VAT (eg “You should charge VAT at the rate of 20 per cent on any sales of standard rated goods or services that you make on or after 4 January 2011”).
In any event, as previously mentioned, if I am wrong about this and VAT is not included within the definition of ‘costs’, on what basis can VAT be recovered on the back of an order for ‘costs’ alone?