Legal Cost Specialists

Posts Tagged "VAT"

Costs Practice Direction – VAT amendments

By on Apr 18, 2011 | 5 comments

Amendments have been made to Costs Practice Direction, which came into force on 6 April 2011, which are made to clarify how VAT should be treated in relation to payments to a third party that are shown as disbursements by the legal representatives in bills of costs: “Disbursements not classified as such for VAT purposes 5.11 (1) Legal representatives often make payments to third parties for the supply of goods or services where no VAT was chargeable on the supply by the third party: for example, the cost of meals taken and travel costs. The question whether legal representatives should include VAT in respect of these payments when invoicing their clients or in claims for costs between litigants should be decided in accordance with this Direction and with the criteria set out in the VAT Guide (Notice 700) published by HM Revenue and Customs. (2) Payments to third parties which are normally treated as part of the legal representative’s overheads (for example, postage costs and telephone costs) will not be treated as disbursements. The third party supply should be included as part of the costs of the legal representatives’ legal services and VAT must be added to the total bill charged to the client. (3) Disputes may arise in respect of payments made to a third party which the legal representative shows as disbursements in the invoice delivered to the receiving party. Some payments, although correctly described as disbursements for some purposes, are not classified as disbursements for VAT purposes. Items not classified as disbursements for VAT purposes must be shown as part of the services provided by the legal representative and, therefore, VAT must be added in respect of them whether or not VAT was chargeable on the supply by the third party. (4) Guidance as to the circumstances in which disbursements may or may not be classified as disbursements for VAT purposes is given in the VAT Guide (Notice 700, paragraph 25.1). One of the key issues is whether the third party supply (i) was made to the legal representative (and therefore subsumed in the onward supply of legal services), or (ii) was made direct to the receiving party (the third party having no right to demand...

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VAT Practice Notes

By on Mar 16, 2011 | 1 comment

Links to updated Law Society practice notes on VAT on disbursements and VAT increase to 20%, and Bar Council guide on VAT increase now available via the VAT section on Legal Costs Central.

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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....

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VAT and bills of costs – yet again

By on Jun 23, 2010 | 0 comments

I had hoped never to have to mention the dread subject of VAT again. But the inevitable has happened and the budget has raised VAT to 20% from 4 January 2011. At the risk of repeating myself, this will mean that from 4 January 2011 bills of costs should usually be drafted with up to 4 sections and different rates claimed for each, regardless of when the matter settles: Before 1 December 2008 – 17.5% Between 1 December 2008 and 31 December 2009 – 15% Between 1 January 2010 and 3 January 2011 – 17.5% From 4 January 2011 – 20% Of course, if you are lucky enough to be drafting a bill where some of the work stretches back to 1991 you will have a further period with 15% applying pre-1 April 1991. A bottle of champagne to the first reader who sends me a copy of a bill next year with 5 different VAT rates applied. The amounts now at stake make it crucial to get this right. One well known firm of law costs draftsmen (who shall remain nameless) has only just removed from the “latest news” section of their website information about the change in VAT rate. And they were referring to the 1 December 2008 decrease, not the 1 January 2010 increase. Apparently, the other day at a detailed assessment, the thorny issue of the correct approach to VAT arose and the Legal Costs Blog was mentioned by one of the law costs draftsmen present (not someone from my firm) and the Regional Costs Judge duly proceeded to print off a copy of my last post on the subject for all to study. I’m not sure quite what benefit was obtained from this but it reminds me of the story of the judge who had heard lengthy submissions from one of the advocates and informed him: “I’ve listened carefully to all you have to say but I am none the wiser”. To which the barrister replied: “Quite possibly Your Honour but you are now considerably better informed”....

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VAT – Yet again

By on May 27, 2010 | 8 comments

My post on Tuesday, concerning the change in VAT rates, confirmed two things.  Firstly, how mind numbingly boring a topic it is.  Secondly, how much difficulty this is causing law costs draftsmen, solicitors and others.  The number of comments, both on the Legal Costs Blog and in emails I received, indicates that some readers are still not convinced by the analysis I gave.  Whether dealing with a high value claim or large volumes of low value claims, this extra 2.5% is important.  I will therefore make one final attempt to set out the basic position as I understand it and hope never to have to write on the subject again.  I am going to make one important assumption here (and readers may think this is sensible or not), namely, that the Law society and Bar Council have got the basic position right.  I think the problem that many have with this issue is getting themselves bogged down in worrying over issues concerning the “basic” tax point and “actual” tax point.  These issues are no doubt important under ordinary circumstances, but a change in VAT rates results, at least on this occasion, in special “change of rate rules”.  This is the important issue to understand.  The Law Society Practice Note is clear on this:  “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.”  Therefore, for a typical CFA funded case, with no interim invoices, you can charge VAT at 15% for the work done during the period the rate was 15%.    The Bar Council has issued a Guide for barristers...

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