Solicitors - when VAT needs to be accounted for on services

By Tolley
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The following Value Added Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Solicitors - when VAT needs to be accounted for on services
  • Payments into client accounts
  • Standard monthly payments for legal aid and contracting work
  • Adjusting solicitors fees
  • Extending the 14 day rule
  • 2 part bills

There are specific rules relating to when VAT needs to be declared to HMRC. The time when VAT needs to be declared to HMRC is called a ‘tax point’. There are no special tax point rules for supplies made by solicitors and, with the exception of the agreed extension to the 14 day rule (see below), solicitors need to use the normal rules for determining when VAT needs to be declared to HMRC.

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Solicitors will generally make single supplies for VAT purposes, even though the transaction may involve work undertaken over an extended period of time. The tax point occurs when the services have been fully completed (this is called the basic tax point). The actual tax point can be delayed by up to 14 days if the solicitor issues a valid tax invoice for the work, provided this occurs within 14 days of the work being completed.

If a solicitor makes supplies on a regular basis to a specific client, this will normally represent a series of separate supplies from a VAT perspective. Each supply will have its own basic tax point, and the solicitor will need to account for VAT when each individual service has been completed.

If the solicitor bills the client periodically for all work performed or completed during the period, the tax point rule outlined above must be used for each separate supply made.

It should be noted that, from a VAT perspective, some types of legal work are inherently continuous in nature (eg the supply of the services of a solicitor acting as a trustee) and these supplies normally fall within the time of supply rules for continuous supplies of services.

If the service can be treated as a continuous supply of services, VAT will need to be declared on the earlier of:

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