Dealing with VAT

Question 1

If a law firm is registered for VAT, how much VAT will it owe on professional service bills?

Answer 1

20%

Question 2

What happens if a solicitor fails to state their fee is plus VAT?

Answer 2

It’s presumed the fee includes VAT, client doesn’t owe an additional 20%

Question 3

Does law firms generally charge VAT when it bills clients for disbursements?

Answer 3

No

Question 4

What is the agency method of billing?

Answer 4

Where invoice for services is addressed to the client. The firm will pay the entire amount of the expense, including VAT, from client money if this is available

Question 5

Does a firm charge additional VAT when using the agency method?

Answer 5

No

Question 6

What is the principal method of billing?

Answer 6

Where invoice for services is addressed to the firm, meaning the firm must use business money to pay it. It will then bill the client as if it supplied the services and charge VAT on this

Question 7

If a firm pays an invoice via the principal method, the VAT on the invoice will be added to the total VAT charged by the ____ when it issues its bill of costs to the _____

Answer 7

firm, client

Question 8

What can a firm do if it receives an invoice for legal counsel fees in the firm’s name?

Answer 8

The firm can “cross out” its own name and replace it with the client’s name, and then follow the agency method

Question 9

Are costs incidental to running the firm (e.g. photocopying, travel expenses, postage fees) treated as disbursements?

What does this mean in terms of VAT?

Answer 9

No - meaning VAT is chargeable on such costs

Question 10

Give 4 examples of payments that HMRC guidelines have stated would be treated as disbursements

Answer 10

1. Estate agent fees
2. Surveyor’s fees
3. Court fees
4. SDLT