VAT on costs
VAT on costs

The following Dispute Resolution practice note provides comprehensive and up to date legal information covering:

  • VAT on costs
  • Entitlement to VAT on costs
  • VAT liability of solicitors’ and barristers’ fees
  • Time of supply—the tax point
  • Legal services supplied to clients outside the UK
  • Disputes as to the entitlement to VAT
  • Aarhus Convention claims
  • VAT and disbursements
  • When VAT should not be claimed in a bill of costs—legal work
  • Bill of costs when the rate of VAT changes
  • More...

This Practice Note explains the special provisions that pertain to VAT in relation to costs that are the subject of either summary or detailed assessment before the High Court. The relevant provisions are in Civil Procedure Practice Direction 44 (CPR PD 44).

Entitlement to VAT on costs

This is addressed in CPR PD 44, paras 2.3–2.6.

The party seeking to recover its costs is responsible for ensuring that VAT is only claimed if, and to the extent that, it is unable to recover VAT. Where the party can:

  1. recover the VAT from HMRC, it should not be included in a claim for costs

  2. recover a proportion of the VAT from HMRC, only that proportion which is not recoverable from HMRC should be included in the claim for costs

Many parties have litigation costs insurance that can be used towards payment of an adverse costs award. The standard position with regard to costs insurance is that insurers will pay the VAT on a solicitor’s invoice if the insured party is unable to recover that VAT, but not otherwise.

VAT liability of solicitors’ and barristers’ fees

The default position is that legal services supplied to clients in the UK are subject to VAT (Value Added Tax 1994, s 1).

VAT does not need to be charged if the person supplying the legal services is below the VAT registration threshold and is not registered

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