The case of Marbrow v Sharpes Garden Services Ltd (2020) EWHC B26 (Costs) considered the issue of whether the cap on recoverable costs of the budgeting process are inclusive, or exclusive of VAT. It was held that the limits stated in the rules are exclusive of VAT. This was a personal injury claim in which costs had been budgeted. One of the issues in the assessment is whether the limits on the recoverable costs of completing Precedent H and the costs management process were inclusive or exclusive of VAT.
Paragraph 7.2 of Practice Direction 3E provided that “save in exceptional circumstances –
a) the recoverable costs of initially completing Precedent H shall not exceed the higher of –
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(i) £1,000; or
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(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 should not exceed 2% of the total of the incurred costs (as agreed or allowed on assessment) and the budgeting (agreed or approved) costs.”
The Defendant argued that the caps must be inclusive of VAT because it was not expressly stated to be otherwise. It was held that the caps provided for 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 the budget exclude VAT, as Precedent H makes clear. Therefore, 2% of £100,000 excluding VAT will be £2,000 excluding VAT.