VAT

The current standard VAT rate is 20%: (See: VAT Rates – GOV.UK).

Standard VAT Rates History:
18/06/1979 – 18/03/1991: 15%
19/03/1991 – 30/11/2008: 17.5%
01/12/2008 – 31/12/2009: 15%
01/01/2010 – 03/01/2011: 17.5%
04/01/2011 – Present: 20%

The current Threshold for registering for VAT (2019/20) is £85,000 with £83,000 being the threshold for de-registering.

VAT paid by de-registered persons:

(1) Alan Robert Miskin (2) Jennifer Miskin -v- St John Vaughan 2002 – A party was liable to pay the costs of a ‘taxable person’ who had been deregistered for VAT purposes before the period to which the liability for costs occurred. No recovery of VAT on those costs (as input tax) was possible, with the consequence that the claim for costs carried VAT.

Changes in VAT rates:

The former Costs Practice Direction at Paragraph 5.7 provided this guidance:

“5.7 Where there is a change in the rate of VAT, suppliers of goods and services are entitled by ss.88(1) and 88(2) of the VAT Act 1994 in most circumstances to elect whether the new of the old rate of VAT should apply to a supply where the basic and actual tax points span a period during which there has been a change in VAT rates”.

For example solicitors, whose work spanned the period 2008 – 2010, were entitled to elect which VAT rate to charge for work undertaken during the period 01.12.08 – 31.12.09 i.e. 15% or 17.5%. See the explanation in: VAT – Reversion of the standard rate to 17.5%: A detailed guide for VAT-Registered businesses.

However, in Lloyd Fraser (Ply Chain) v Hutton (13/9/11, Luton County Court), His Honour Judge Kay QC allowed the appeal against the District Judge’s decision to allow VAT at 20% throughout on the basis the solicitors were entitled to elect what rate to charge, making reference to Costs Practice Direction 5.8.

“5.8 It will be assumed, unless the contrary indication is given in writing, that an election to take advantage of the provisions mentioned in paragraph 5.7 above and to charge VAT at the lower rate has been made. In any case in which an election to charge at the lower rate is not made, such a decision must be justified to the court assessing the costs.”

VAT on Third Party Expenses:

Rowe & Maw v Customs and Excise Commissioners [1975] 1 W.L.R. 1291 – VAT should be charged on expenses that were incurred for the purposes of enabling the solicitor to provide a service to the client as opposed to expenses that were incurred in the client’s name, as agent for the client.

There are a number of other cases which deal with the issues as to whether solicitors need to charge VAT on medical reports and MRO fees if VAT is not claimed by the agency/expert and whether they should be treated as being disbursements as opposed to being part of the legal services provided.

Barratt Goff & Tomlinson -v- HMRC (2011)

Makuwatsine v Trathens Travel Services Limited (2011)

Note: an Amendment to the Costs Practice Direction re VAT was made on 06.04.11 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.

Further up to date guidance is contained in the Judgment in: British Airways Plc v John Prosser [2019] EWCA Civ 547