VAT – Again

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13 responses to “VAT – Again”

1. 

   Anonymous

   May 25, 2010

   On a related VAT issue; we are noticing from one particular Defendant insurer a refusal to pay VAT (at whatever rate!) upon the medical evidence obtained (usually via an agency) as to the actual medical expert element (seeking evidence that the practitioner is VAT registered). We have guidance from HMRC that VAT should be charged on the whole amount (i.e. if the expert charges £50 and the agency cahrge £30 VAT is payable upon the full £80 regardless of the expert’s VAT position).

   Said insurer state they are awaiting a court decision upon the same without specifying what case it is, does anyone have any information upon this?

   Reply
2. 

   Anonymous

   May 25, 2010

   Your interpretation of cost practice direction 5.7 is incorrect.

   It specifically states that where the basic and actual tax points span a VAT change you can elect to apply the lower VAT rate.

   You will be aware that the basic tax point is when the retainer ends and the actual tax point is the point of invoice.

   If the work was started in 2009 and completed in 2010 and then later invoiced in 2010 the tax points do not span the VAT change.

   Reply
3. 

   Simon Gibbs

   May 25, 2010

   Not according to the Law Society Practice Note. This reads:

   “Under the normal rules, standard rated supplies with tax points created by payments received or VAT invoices issued on or after 01 January 2010 will be liable to the 17.5 per cent rate. However, there are optional change of rate rules that you may wish to apply:

   * Where you issue a VAT invoice or receive a payment on or after 01 January 2010 for work that was completed before 01 January 2010 you may account for VAT at 15 per cent.
   * Where work commenced before 01 January 2010 but will not be completed until on or after 01 January you can apportion the supply between that liable to 15 per cent and that liable to 17.5 per cent.”

   Reply
4. 

   paul

   May 25, 2010

   Is it not still a grey area though until we have a case that gives us chapter and verse on the subject? The word “may” in the practice note is open to interpretation?? Why would service be defective?

   Reply
5. 

   Simon Gibbs

   May 25, 2010

   CPD 5.9 provides a mandatory requirement that a bill is split between the periods of different VAT rates being in place. This appears to be so regardless of what rate is being claimed. A bill that fails to show this split is, in my view, defective.

   Reply
6. 

   paul

   May 25, 2010

   Thanks for your response; to be honest I, like you, feel that Bills should be split as per your blog post above, but i would be more confident in the position if there was a case to make things clearer so as to remove the temptation to simply claim the higher amount and let the paying party raise the point.

   Reply
7. 

   Anonymous

   May 25, 2010

   It’s interesting to note that this has only become an issue for defendants since the VAT rate has reverted to 17.5%!!!!!!!!

   Nothing at all was heard about breaches of the CPD / defective bills etc whilst claims for costs were being presented to paying parties with VAT claimed at 15% throughout even when the work done covered pre and post 01.12.09!!!!!!!

   Strange that!!!!

   Reply
8. 

   Jacques Hughes

   May 26, 2010

   (1) As the CPD states, the solicitor can elect whether to charge differential rates, or just 17.5% throughout.

   (2) If the solicitor elects to pay the higher rate throughout, then the client is liable to pay that rate.

   (3) Since inter partes assessment is concerned with whether THE CLIENT is reasonably claiming costs, not with whether his solicitor has acted reasonably, CPD 5.8 is problematic. The client cannot act unreasonably in claiming the higher rate throughout if this, as a result of his solicitor’s (entirely lawful) election is what he is obliged to pay.

   (4) Where, because of a solicitor’s election, the rate of VAT claimed is uniform throughout, I do not believe the court will interpret CPD 5.9 as requiring the bill to be split to reflect the periods where the rate would have been different if the election had been different.

   (5) Re VAT on medics: in 2005, the European Court of Justice ruled that the VAT exception for doctors applied only to fees for treatment, not for medico-legal work. HMRC allowed doctors a transitionary period, but now VAT must be charged on medical reports if the practioner’s volume of medico-legal business causes him to be registered. So, if the practitioner is VAT registered, VAT is payable. Equally, if the supply is made by a VAT registered agency, then VAT is payable on the whole fee not just the agency’s charge regardless of the medic’s VAT status. As the contract is between the solicitor (as agent of his client) on the one part and the agency on the other, and the whole supply is taxable in the light of the ruling of the ECJ.

   Reply
9. 

   Anonymous

   May 26, 2010

   in response to Anonymous of 25th May (2 above) the reason no challenge was raised when the vat rate changed to 15% on 01.12.08, was because the Law Society and HMRC Guidance was that vat applied throughout @ 15%. it has only been with the reversion to the rate of 17.5% that the alternate provisions mentioned by Simon have come into play. It is also only with the recent amendments to the CPR that the new practice directions have appeared specifically to cover the point

   Strange you didnt know that! 🙂

   It isd a question of reasonableness. Most solicitors dont bother to check what rate they claim, so they arent making any election at all. Ignorance is no excuse. I have had one case where a solicitor maintained he was paying 17.5% throughout, and the DJ said that may be the case but it was not reasonable so he limited the defendants liability to 15%, adding he hoped as an officer of the Court the solicitor would now pay the Revnue the balance as was his declaration to the Court

   On the Medical Vat point, there is a decision, it does rule that vat is not recoverable, and it is in the process of being reported

   Reply
10. VAT – Yet again : GWS Law

    May 27, 2010

    […] post on Tuesday, concerning the change in VAT rates, confirmed two things.  Firstly, how mind numbingly boring […]

    Reply
11. 

    Anonymous

    June 2, 2010

    “On the Medical Vat point, there is a decision, it does rule that vat is not recoverable, and it is in the process of being reported”

    Any further detail upon this?

    Reply
12. 

    Peter Trowell

    January 18, 2011

    Are we over complicating the matter here? VAT is payable to HM Revenue and Customs not the Law Society or the Ministry of Justice.

    Contrary to what ‘Anonymous’ writes on 25th April, CPD 5.7 does not refer to the ‘lower’ rate.

    Regardless of what CPD 5.7 says surely s88 1994 VAT act has the final word?

    Reply
13. 

    Anonymous

    November 4, 2011

    HMRC’s guidance

    1. VATTOS8520 – Tax points for specific categories of supplier: solicitors: basic tax point

    The majority of supplies by a solicitor are single supplies, albeit the supply may involve work undertaken over an extended period of time. A good example of this is litigation. The basic tax point occurs when the services have been fully completed.

    But it can be difficult sometimes to establish precisely when this might be, especially where the matter has taken a number of years to be resolved. In these circumstances you will have to be guided by solicitors themselves subject, that is, to what is claimed being reasonable.

    Some solicitors make supplies on a regular basis to an individual client. In most cases this will represent a series of separate supplies, each of which will be subject to its own basic tax point. Where it is the solicitor’s practice to bill the client periodically for all work performed or completed during the period, it is important to ensure that the basic tax point rules are complied with for each of the separate supplies. Only in exceptional circumstances, such as where a solicitor is retained and remunerated as a permanent legal adviser or to act as the client’s legal office, might this kind of relationship represent a continuous supply of services. But there are some types of legal work that are inherently continuous in nature. An example being the supply of the services of a solicitor acting as a trustee. These supplies normally fall within the scope of the time of supply rules that apply to continuous supplies

    2. VATTOS8540 – Tax points for specific categories of supplier: solicitors: adjustments to fees
    Introduction
    In certain circumstances a solicitor’s fees can be subject to third party scrutiny and adjustment before acceptance. The circumstances in which this can occur and the tax point consequences depend on the type of work involved.

    Contentious work (non-Legal Aid)
    The losing party to the legal action may be ordered to pay costs. Where this is the case, the solicitor for the successful party prepares a bill which is then either agreed with the solicitor for the loser, or is referred to the Court for scrutiny under the taxation procedures. Settling of the costs in these circumstances is part and parcel of the solicitor’s overall supply to the client. A basic tax point does not therefore occur until either the costs have been agreed between the solicitors or the taxation procedure is complete.

    Solicitors – The Law Society
    The procedure for drawing up solicitor’s bills is such that most solicitors are unable to issue an invoice within 14 days after the date of completion of their services. The following general extension has therefore been granted to all VAT registered solicitors:

    If the consideration for a supply of services by a solicitor is not ascertained or ascertainable at or before the time when the services are performed, the supply may be treated as taking place at the time when the solicitor issues a VAT invoice in respect of it provided that the VAT invoice is issued not later than 3 months after the date of performance of the services.

    Section 88(1)-(3), (6) and (8) sets out the special rules that can be adopted for supplies that take place around the time of a change in VAT rate or liability. Suppliers may opt to use the rate of VAT in force at the time of the basic tax point where this is different from the rate that would otherwise be applicable under the normal tax point rules. But this only applies to the rate of VAT. For all other purposes the normal tax point rules continue to apply. So, for example, in the case of a supply where the tax point would normally be the issue of an invoice 10 days after the basic tax point, this continues to be the time at which the VAT must be accounted for. But if, in the meantime, there has been a change in VAT rate or liability, the supplier may choose to invoice the supply at the VAT rate applicable at the time of the basic tax point.

    There are some limitations and, under 88(6), this facility cannot be adopted for supplies subject to self-billing arrangements or where the supply involves goods disposed of by a third party in satisfaction of a debt. Further details about disposals of goods in satisfaction of debts can be found in manual covering supply and consideration.

    Section 88(3) brings supplies that are subject to the time of supply regulations potentially within the scope of these change of rate arrangements. This is activated by regulation 95 of the VAT Regulations 1995 (see VATTOS2390). Section 88(8) defines ‘reduced rate’ for the purposes of the section. For further information see VATTOS7200.

    VATTOS2280 – Legislation: UK primary law (VAT Act 1994): Section 88 Supplies spanning change of rate, etc
    Law
    88(1) This section applies where there is a change in the rate of VAT in force under section 2 or 29A or in the descriptions of exempt, zero-rated or reduced-rate supplies or exempt, zero-rated or reduced-rate acquisitions.

    (2) Where –

    (a) a supply affected by the change would, apart from section 6(4), (5), (6) or (10), be treated under section 6(2) or (3) as made wholly or partly at a time when it would not have been affected by the change; or

    (b) a supply not so affected would apart from section 6(4), (5), (6) or (10) be treated under section 6(2) or (3) as made wholly or partly at a time when it would have been so affected,

    the rate at which VAT is chargeable on the supply, or any question whether it is zero-rated or exempt or a reduced-rate supply, shall if the person making it so elects be determined without regard to section 6(4), (5), (6) or (10).

    (3) Any power to make regulations under this Act with respect to the time when a supply is to be treated as taking place shall include power to provide for this section to apply as if the references in subsection (2) above to section 6(4), (5), (6) or (10) included references to specified provisions of the regulations.

    (4)

    (5)

    (6) No election may be made under this section in respect of a supply to which paragraph 7 of Schedule 4 or paragraph 2B(4) of Schedule 11 applies.

    (7)

    (8) References in this section –

    (a) to a supply being a reduced rate supply, or

    (b)

    are references to a supply …… being one on which VAT is charged at the rate in force under section 29A.

    Top of page

    Commentary
    Section 88(1)-(3), (6) and (8) sets out the special rules that can be adopted for supplies that take place around the time of a change in VAT rate or liability. Suppliers may opt to use the rate of VAT in force at the time of the basic tax point where this is different from the rate that would otherwise be applicable under the normal tax point rules. But this only applies to the rate of VAT. For all other purposes the normal tax point rules continue to apply. So, for example, in the case of a supply where the tax point would normally be the issue of an invoice 10 days after the basic tax point, this continues to be the time at which the VAT must be accounted for. But if, in the meantime, there has been a change in VAT rate or liability, the supplier may choose to invoice the supply at the VAT rate applicable at the time of the basic tax point.

    There are some limitations and, under 88(6), this facility cannot be adopted for supplies subject to self-billing arrangements or where the supply involves goods disposed of by a third party in satisfaction of a debt. Further details about disposals of goods in satisfaction of debts can be found in manual covering supply and consideration.

    Section 88(3) brings supplies that are subject to the time of supply regulations potentially within the scope of these change of rate arrangements. This is activated by regulation 95 of the VAT Regulations 1995 (see VATTOS2390). Section 88(8) defines ‘reduced rate’ for the purposes of the section. For further information see VATTOS7200.

    Reply