In Marbrow v Sharpes Garden Services Ltd  EWHC B26 (Costs) (10 July 2020) Senior Costs Judge Gordon-Saker clarified an issue which arises on inter-partes assessments: whether or not the caps formerly at paragraph 7.2 of the CPR Practice Direction 3E (now at CPR 3.15(5)) include VAT.
By way of a reminder, CPR 3.15(5) provides:
“Save in exceptional circumstances—
(a) the recoverable costs of initially completing Precedent H (the form to be used for a costs budget) shall not exceed the higher of—
(i) £1,000; or
(ii) 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”.
Senior Costs Judge Gordon-Saker found that “To my mind the caps provided by paragraph 7.2 cannot include VAT because they are expressed as percentages of figures which do not include VAT. All of the figures set out in a budget exclude VAT – as Precedent H makes clear. 2% of £100,000 excluding VAT, would be £2,000 excluding VAT.”
Senior Costs Judge Gordon-Saker also derived assistance from Friston on Costs (3rd Edition) at paragraph 12.133: “While there is no authority on the point, it is likely that the percentage limits are exclusive of VAT. This is because Precedent H is designed in such a way as to discourage VAT being recorded therein, so it would seem odd if the costs were payable on a VAT-inclusive basis. Moreover, if it were not a VAT-exclusive limit, then a VAT-registered litigant would have the advantage over a non-VAT registered litigant – and that would be a curious state of affairs.”