TO INCLUDE OR NOT INCLUDE? – VAT IS THE QUESTION (ALL’S WELL THAT ENDS WELL)

July 18, 2020

 

Where would lawyers be without some ambiguities in the rules? But whilst “good for business” some alleged ambiguities do cause some head scratching because they seem contrary to plain old common sense.

It is with some relief therefore that the Senior Costs Judge, Master Gordon-Saker has come down firmly on the side of common sense in Marbrow v Sharpes Garden Services Ltd [2020] EWHC B26 Costs.

 

At issue was whether the allowances in the rules for the initial preparation of a budget and other costs of costs management (the 1% and 2% caps) were inclusive or exclusive of VAT. The Master ruled that they were exclusive.

 

The provisions are set out at 7.2 PD 3E thus:

 

Save in exceptional circumstances:

 

(a)    the recoverable costs of initially completing Precedent H shall not exceed the higher of £1,000 or 1% of the total of the incurred costs (as agreed or allowed on assessment) and the budgeted costs (agreed or approved); and

(b)    all other recoverable costs of the budgeting and costs management process shall not exceed 2% of the total of the incurred costs (as agreed or allowed on assessment) and the budgeted (agreed or approved) costs.

 

The Defendant (paying party) argued that in the absence of an express provision that they were exclusive of VAT then they must be treated as being inclusive. The Master, dismissing arguments that to say otherwise would need the Master to add words to the rules that were not there (i.e. “excluding VAT” (and similarly dismissing an argument from the Claimant that VAT was not within the definition of “costs” at 44.1(1) – with that provision not being an exhaustive list) held:

 

“10. To my mind the caps provided by paragraph 7.2 cannot include value added tax because they are expressed as percentages of figures which do not include value added tax. All of the figures set out in a budget exclude value added tax – as Precedent H makes clear. 2% of £100,000 excluding value added tax, would be £2,000 excluding value added tax”

 

In other words, the whole budgeting exercise uses VAT exclusive figures, so why would the 1% and 2% figures be any different? This view was supported by comments in the leading costs textbook Friston on Costs. The Master also took heart from the approach of the Civil Procedure Committee when a similar query arose as to whether the £1500 cap on recoverable costs in provisional assessment was inclusive or exclusive of VAT. The Committee issued a clarifying amendment that it was exclusive.

 

A neat try, but with no success this time for the paying party. Common sense prevails again!

 

The Master’s judgment is of value on another couple of topics - the recovery of interest on a funding loan and the application of the incipitur rule for the period of recoverable interest. Practitioners may care to look at the judgment for those insights too.

 

 

 

 

Disclaimer: The content of this blog is provided on a complimentary basis. The opinions expressed do not necessarily represent those of SPH Costing Services Ltd. The content of the blog is not intended to and does not constitute legal advice on any specific matter or generally. Individual Legal advice should be sought from a Lawyer in relation to any specific case or issue. SPH Costing Services Ltd does not accept any responsibility for the correctness of this blog or for any consequences of relying on it.

 

 

 

 

 

 

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