Recharged legal costs

Our client is in the legal profession. Initially following a difficult VAT registration process we completed a long period of return for our client after receiving clarification from HMRC that input tax could be reclaimed on bailiff costs invoiced to the practice that were subsequently recharged to the clients excluding any VAT. Returns were then prepared on this basis until October 2005 after which time our client changed its book-keeping system which resulted in the incorrect preparation of returns (based on the advice previously received) by declaring output tax on the recharged costs while reclaiming input tax on those costs.

The first period of return covered the period October 2003 to July 2005 and was completed following a meeting with an HMRC representative to resolve whether the input tax could be reclaimed. We have now received conflicting advice stating that input tax could correctly be...