In Koolmove Limited v HMRC [2019] TC 7305, the First tier tribunal allowed a limited company to claim back input tax on legal fees personally incurred by the director to allow the company to be established.

While still an employee, a software programmer developed new software outside his employment. The employer wrongly believed this product violated its copyright and confidential information. The employer launched unsuccessful proceedings in the High Court. Once the employee had won his case, he incorporated the company to exploit this software.

The issue was whether the employee, now a director, could claim input tax for his legal expenses in the six months before the company started trading. HMRC argued that it could not as the expenses were incurred for the director personally, and not for the company which had not then been in existence.

The tribunal accepted the director’s explanation that the legal expenses were incurred to ensure that he could set up the company. Had he lost the case, the company would not have been formed.


It is a general rule that VAT may only be recovered by a trader if the goods or services were provided (and usually invoiced) to that trader.

In this case the trader relied on VAT Regulations SI 1995 No 2518 reg 111(1)(b). This regulation provides an exception to the general rule when an individual incurs expenditure for a company that has yet to be incorporated.

Links to our guides:

What constitutes a valid VAT invoice?
Pre-registration input tax
VAT: Starting in business

External links:

Koolmove Limited v HMRC [2019] TC 7305
VAT regulations