Before Reclaiming Legal-Bill VAT, Ask Whose Defence You Bought

A lawyer’s invoice can support company cash today and still require a clear account of who received the service.

The legal invoice arrives while everyone is occupied by the problem that caused it. The adviser wants payment. The director wants the matter contained. The bookkeeper sees the company name, the VAT amount and the deadline for the next return.

For a small BV, reclaiming that VAT can ease immediate cash pressure. Yet one invoice may cover the company’s position, a director’s defence, staff interviews, an internal investigation or contact with an insurer. A single supplier invoice can carry several different VAT treatments.

The practical question is simple: which legal entity received the service, and how did that service support its taxable turnover?

That question belongs on the table before VAT recovery enters the cash forecast as available money.

Payment is not the deciding fact

Belastingdienst guidance sets out familiar conditions. The service must have been supplied to the entrepreneur claiming the deduction. It must serve taxable business turnover, and the business must hold a compliant VAT invoice. The administration must support the amount claimed.

Paying the bill does not settle those points. A BV can pay an adviser without receiving every service described on the invoice. This matters when a founder is also director, shareholder, employee and the public face of the company. Those roles overlap in real life. The VAT return still needs to show which role the lawyer served.

The Hoge Raad addressed that tension in its ruling of 11 April 2025. A BV had paid invoices for legal assistance to its director during a criminal investigation involving both the company and the director. The Amsterdam Court of Appeal accepted that the services were connected with preserving or improving the BV’s economic activity.

The Hoge Raad annulled the disputed VAT assessments and interest decisions, granting refunds totalling €115,564. Procedure also shaped the outcome. The Court of Appeal had applied the BUA exclusion after the inspector had withdrawn that position from the dispute.

The invoice needs a business story

The ruling corrects two lazy habits. Legal assistance for a director can serve the company’s economic activity. At the same time, company payment does not turn every element of a personal defence into a company service.

The business needs a coherent account of what it bought. The engagement letter should identify the instructing entity. The invoice description should separate workstreams where possible. An approval record should explain why the company bears the cost. Any reimbursement by an insurer, group company or individual belongs in that same account.

This is where governance enters the VAT return. If a director’s own conduct is under scrutiny, that director should not be the only person approving the mandate, the bills and the VAT treatment. Independent approval is not theatre. It protects company money and gives the director a clearer record of why the payment was made.

The BUA can also matter when company spending benefits a director, employee or another person. Its application turns on the facts and legal relationship. Broad descriptions such as “legal fees” or “investigation support” therefore leave too much unsaid. They tell the ledger how much was spent, but not whose risk was managed.

Mixed turnover changes the cash picture

Cash becomes more delicate when a business has both taxable and exempt turnover. Belastingdienst guidance provides that VAT on mixed-use services is only partly deductible. Turnover proportions can provide the allocation. Actual use should be used where it gives the better measure.

For legal services used immediately, the initial deduction may also require a year-end correction using the full-year position. That can lead to additional VAT payable or an additional deduction. A quarterly reclaim is therefore not always the final economic benefit.

Consider a consultancy BV with exempt financing activity alongside its ordinary taxable work. It receives a substantial invoice covering company defence, advice to a director and group-wide work. The bookkeeper applies the usual pro rata percentage and reclaims part of the VAT. Three months later, that cash has helped fund suppliers and salaries.

A later review may change the allocation between workstreams or the relevant percentage. The correction then becomes a real payment. The earlier reclaim has not vanished as an accounting thought. It has left the bank account.

That is why a useful legal budget separates the fee excluding VAT, the VAT currently considered recoverable, the amount subject to allocation and the amount held as cash exposure. This is not pessimistic forecasting. It is the difference between a filed position and cash the company can safely regard as settled.

Give the return something solid to stand on

Tomorrow morning, open the current year’s material legal invoices. Connect each one to the engagement, contracting entity, workstream, beneficiary, approval and VAT treatment. Where one invoice serves several interests, establish whether the records support a sensible split.

Return to the consultancy BV. Its difficulty was never simply whether it could reclaim VAT. The deeper issue was whether its books could separate company defence from personal assistance, and provisional cash relief from the final VAT cost.

A legal crisis naturally directs attention to lawyers, deadlines and reputation. The VAT return can feel secondary. Yet it records who the company regards as the recipient of the service and why company money paid for it.

That makes the return more than a calculation. It is the financial version of the company’s explanation. When that explanation is clear before the cash is spent, both the VAT position and the business become easier to defend.

The data, sourcing, and analysis behind this article were conducted by Linda Pavan Geraedts. AI was not used to identify sources, build the factual basis, or produce the analytical judgment contained here. AI was used only as a drafting aid. The final English text was personally reviewed, edited, and approved by Linda Pavan Geraedts before publication.

References

• Btw op juridische kosten voor concern pro rata aftrekbaar - Taxence
• Hoge Raad 11 april 2025, ECLI:NL:HR:2025:544
• Belastingdienst - Welke btw mag u aftrekken?
• Belastingdienst - Inschatting van het gebruik bij belaste en vrijgestelde omzet
• Belastingdienst - Herziening aftrek voor niet-investeringsgoederen en diensten
• Wettenbank - Wettelijk kader btw-aftrek en BUA
• Belastingdienst - Ontvangen facturen administreren