We have become aware of the Law Society’s press release dated 12 January 2009 headed up “Law Society successfully challenges VAT guidance for legal aid firms”.
The Law Society claim that they have given a ‘boost’ to Legal Aid Solicitors by persuading the Legal Services Commission (LSC) to reimburse VAT on disbursements at the rate paid by the firm and not limit it to 15% following the rate cut in December 2008.
Unfortunately, the Law Society do not appear to have grasped the mechanics of how VAT works. The new VAT rate applies to the whole case cost. This will include disbursements already incurred, and some already paid (perhaps at 17.5%). However, as the value of work to be credited is calculated without VAT, and any VAT in addition to this amount is accounted for in your VAT returns, you will not ‘lose out’ in any shape or form as the Law Society are suggesting.
We are certain that the LSC’s revised position, as prompted by the Law Society, will ultimately be reversed when challenged by HM Customs & Revenue and we have therefore resolved to continue to draw bills where work was concluded after 1 December 2008 with VAT claimed at 15% throughout.
If you would wish us to claim costs in the way suggested by the Law Society, ie to claim disbursements where VAT was paid at 17.5% at the rate of VAT paid, we would reluctantly agree to do so, but would require your specific written instructions.
Gibbins
19 January 2009
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