Legal Cost Specialists

Legal Costs and VAT – Skeleton Argument

By on Oct 7, 2010 | 12 comments

The issue of the correct VAT rate to apply to claims for legal costs appears to be continuing to cause law costs draftsmen and the courts all kinds of difficulties.  With VAT about to increase to 20% it is time for defendants to put an end to this nonsense.

Gibbs Wyatt Stone has therefore put together a skeleton argument that should do the trick.  It is available to view, along with links to all the relevant guides, on the VAT section of Legal Costs Central.  You can have this for free (although standard Disclaimer obviously applies).

Let’s see if there are any claimant representatives out there who are brave enough to stick their necks out and produce a skeleton argument in response.

 

    12 Comments

  1. The difficulty as I see it is not in drafting the bills, but rather when a paying party provides a global offer and flatly refuses to break it down. Do we then just calculate a pro rata breakdown of VAT recovery? That is a very poor way of accounting if you ask me.

    I am aware of a court of appeal case that is running on the issue, so hopefully we shall soon see the claimant skelly you mention.

    Pete B

    7th October 2010

  2. Yep, that seems to cover it – well done.

    Jacques Hughes

    7th October 2010

  3. One wonders with all the “training” LCD receive nowadays, why this problem still keep occurring. I don’t remember this type of problem occurring in the early nineties (and I know I could be looking back with my rose coloured spectacles) when we had previous VAT changes (and fixed costs of a sort, anyone remember the old scale 1 maxima) Anyway lots more fun to be had when the new 20% rate comes in and we have bills which cover 3 VAT rates.

    Beelzebub etc

    7th October 2010

  4. what difference does a global offer make?

    you know how much the Bill is worth and therefore apportion the offer as you deem fit. Just apportion the profit costs recovered proportionitely against the different parts and levy VAT at the correct rate. My Bills are split and I just have a bit of extra maths at the end.

    Anon1

    7th October 2010

  5. unfortunately all good Claimants are too busy fighting the good fight and the ridiculous to have enough time to prepare a skelly!

    it seems many Defendants aren’t!

    Roberto

    7th October 2010

  6. ‘Just apportion the profit costs recovered proportionitely against the different parts and levy VAT at the correct rate’

    So pro rata then yeah? Or is proportionitely a new term?

    Pete B

    7th October 2010

  7. Simon that Skeleton is excellent thanks for posting

    @ Pete B – any idea when the COA case you refer to is due to land? Weeks/months?

    – should clear up the ‘confusion’

    Paul Elder

    7th October 2010

  8. I shall find out for you Paul.

    Pete B

    8th October 2010

  9. What about VAT on CFA success fees?
    Should it be charged:
    1. at split rates eg 15% on work done 1.12.08 – 31.12.09 and 17.5% on work from 1.1.10
    OR
    2. at the VAT rate chargeable at date of settlement/final Order on total profit costs of the case, since the success fee only becomes payable at the end?

    Susanna Allen

    16th November 2010

  10. The Legal Services Commission will pay VAT to a solicitor at the rate applicable at the date when a case is concluded; it will not pay VAT at a different rate for any work done while the rate of VAT was different. The solicitor for a publicly funded litigant cannot elect to apply any different rate of VAT so there is no basis for a court on a detailed assessment between the parties to allow VAT on profit costs at any rate other than that applicable at the conclusion of the case.

    Timothy P

    11th October 2011

  11. To expand on my previous comment:

    The Legal Services Commission’s “Guidance on Jan 2011 VAT Change”
    http://www.legalservices.gov.uk/docs/cls_main/Guidance_on_Jan_2011_VAT_Change.pdf
    Says “all cases reported as concluded: ● on or after 4 January 2011 will attract a VAT rate of 20%; ● before 4 January 2011 will comply with the guidance issued in January 2010” and “Date we use to determine VAT rate: Reported case concluded date. How will it work? The case end date you report (called late last worked on) will determine which level of VAT is applied. Where you report the case concluded date as on or after 4 January 2011, we will calculate VAT at 20%.”

    Their “Guidance on Jan 2010 VAT Change”
    http://www.legalservices.gov.uk/docs/cls_main/GuidanceonJan2010VATChange_v1.1_10122009.pdf
    Says “All cases reported as concluded on or after 1st January 2010 will attract a VAT rate of 17.5%”, “Date we use to determine VAT rate: Reported case concluded date. How will it work? The case end date you report (called late last worked on) will determine which level of VAT is applied” and “For VAT purposes the case has been concluded once the service to the client has been concluded (as stated on the CLAIM1 and CLAIM1A).”

    This shows that the Legal Services Commission will pay VAT to a solicitor at the rate applicable at the date when a case is concluded; it will not pay VAT at a lower rate for any work done while the rate of VAT was lower. The solicitor for a publicly funded litigant cannot elect to apply any lower rate of VAT so there is no basis for a court on a detailed assessment between the parties to allow VAT on profit costs at a lower rate than that applicable at the conclusion of the case.

    Timothy P

    11th November 2011

  12. In a CFA case, the argument would be different in the (unlikely but not impossible) event that, by the time of the detailed assessment, the solicitor had actually rendered a bill to the receiving party and the receiving party had actually paid it – especially if the CFA did not contain the Law Society’s model wording.

    Timothy P

    17th January 2013

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