VAT concession for counsel’s fees “may be withdrawn”, warns Law Society

A VAT concession for counsel’s fees paid into and kept in a client account may be withdrawn, HM Revenue & Customs (HMRC) has suggested.

The tax authority confirmed that the concession – published in the Gazette in 1973 following the introduction of VAT – is under review.

Under the concession, solicitors and barristers are able to account for VAT relating to counsel’s fees paid into and kept in a client account in two ways.

The first involves treating the fee as their own expense, meaning the practitioner would reclaim the VAT element as input tax.

According to Law Society guidance, the value of the supply for VAT purposes is the value of your own costs, plus the tax-exclusive value of counsel’s fees.

The second method involves treating counsel’s fees as a disbursement for VAT purposes. The counsel’s VAT invoice should be amended to reflect that the concession has been used. The fee note will then be “recognised as a valid VAT invoice in the hands of the client”, who can reclaim the VAT if they are registered.

The Law Society warns that “extra considerations may arise where your underlying client is based outside the UK” – for example, if they are outside the scope of UK VAT.

As part of the review, HMRC is seeking to understand “the extent and ways” in which solicitors use the concession and “its benefits or deficiencies”.

If withdrawn, the regulator confirmed that it would “do so prospectively” with “appropriate advance notice given”, meaning solicitors may be required to update their accounting controls.

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