The liability of the paying party is one of indemnity only. If the client recovers as input tax the VAT on the solicitor’s services, the paying party should pay only the costs exclusive of the VAT amount. The Law Society’s Gazette, 28 October 1992 at p. 42, sets out the following general principles, as agreed with HMRC, which apply when payment is on an indemnity basis:

‘…

(a) The solicitor whose costs are to be paid should deliver a tax invoice to his or her own client. If his or her client is not a registered taxable person, it is permissible to deliver a VAT inclusive bill without distinguishing the VAT element, although this would not be common practice;

Want to read more?

This content requires a Croner-i Tax and Accounting subscription.

Existing subscriber? Log in

No subscription?

Contact us to discuss your requirements.