No VAT on disbursements

Previously, fees paid to medical experts for reports and records were regarded as a disbursement and therefore free from VAT.

In 2008, HMRC changed its approach and raised an assessment on Nottingham law firm Barratt Goff & Tomlinson requiring VAT to be paid in respect of such fees. The firm successfully challenged HMRCs assessment.

Law Society president Linda Lee said the decision is a reminder that HMRC guidance is not necessarily an accurate reflection of the law.

“While HMRC have well-established guidelines on what may be treated as a disbursement for VAT purposes, its interpretation of those guidelines to require solicitors to account for VAT on items obtained as agent for their client...had caused confusion in the solicitors’ profession. 

“The approach taken by HMRC would have increased the costs of pursuing personal injury and clinical negligence cases. These increased costs would have been met by insurance companies, the NHS and the Legal Services Commission.”