Law firms may be interested in the recent First-Tier Tax Tribunal decision in the case of Barratt, Goff and Tomlinson in which the Law Society also made representations. Zaenia Rogers, Consultant, takes a look.
The appellant law firm had treated the recharge of medical reports and medical record fees to its personal injury clients as outside the scope of VAT as a true VAT disbursement. HMRC took a contrary view and considered the recharges to be further payment for the lawyer’s supply of legal services. On that basis, the recharges would be subject to VAT at the standard rate and an assessment was therefore raised by HMRC and was the subject of the appeal.
The chairman in this case was satisfied that the lawyers were acting as agent for the client when obtaining the reports, as the facts showed the client could purchase the reports directly, that the client effectively had rights and access to the reports, and they could also settle the fees directly themselves if they so wished. The use of a ‘suspense’ account to pay these fees where the lawyers settled the fees on the individual’s behalf was also critical to the judgment, although in reality this purely meant using their own business account as opposed to the client accounts they may have had. All these facts resulted in the chairman concluding all the disbursement rules as set out in Public Notice 700 para 25.1 were being correctly met.
The case is still in time for an appeal by HMRC but those affected may wish to consider protective claims now. However, as with similar VAT refund claims, where clients have been charged incorrectly it is likely that the ‘unjust enrichment’ rules will hinder any windfall for legal firms.
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