VAT on Solicitor costs as a non-resident in the UK

[topazz]

Hello,

My question is not related to VAT on solicitor costs charged to their own clients for services provided on a private basis. I understand these are charged even if resident abroad from other postings on this forum.

My query is as follows:
I am non-resident in the UK (but in the European Community)
I am a Litigant in Person
I made an application for disclosure against my opponent's former solicitors.
I lost the application and now have to pay the solicitor's costs of this application.
I am not a client of the solicitors and they have not provided me with any services.

My question is: "Should VAT be charged on these costs?"

I have found a reference to this issue on the Judicial Studies Board Website as follows if that is of any assistance to you.

14.19 Solicitors and other litigants acting in person

Where a litigant acts in litigation on his own behalf he is not treated for the purposes of VAT as having supplied services and therefore no VAT is chargeable in respect of work done by the litigant unless VAT has been charged on disbursements when the normal rules will apply. This rule applies to a solicitor who acts in litigation on his own behalf, even on a matter arising out of his practice. He is not treated, for the purposes of VAT, as having supplied services therefore no VAT is chargeable on the bill of that solicitor. http://www.jsboard.co.uk/criminal_law/guidecosts/mf_14.htm

I would be most grateful for any comments you may have.
Thank you.

[dally]

Off the top of my head (so do not rely):

If I am understanding you correctly, you are picking up the costs of the other party to the litigation? So, presumably their solicitor provided services to them and so the VAT liability is dependent on their relationship. If that is the case, then all you are doing is funding payment. The thing to consider then is what the norm is in these cases - eg might the other party be able to recover the VAT and so you just fund the VAT (which I think is what happens when inurance company's pay out to VAT regisered claimants)? The Law Society website might issue guidance?

If I am reading your extract correctly that is referring to the situation where a person represents themselves? You cannot make a supply to yourself (generally) for VAT purposes so that would explain the non-VAT point.

As I say, just initial thoughts. Hope I haven't misunderstood your point.

[topazz]

Thank you for your reply.

In fact, I am not picking up the costs of my opponent in this instance.
The solicitor in question no longer represents my opponent, so is providing no service to my opponent.
I have made an application for disclosure of information from the former solicitors. The solicitors are acting for themselves in this case, hence the difficulty for me in establishing whether or not they should be charging VAT.

I believe I may have confused you by referring to my opponent, who is in fact the person who should have provided the information, but he has refused, hence my application for disclosure from the former solicitors.

In this instance, there has been no service provided by the solicitors themselves at all.

My apologies for any confusion.

[dally]

Sorry for my misunderstanding. I therefore do not think they made a supply to you and so presumably they won't charge VAT? It's up to them to decide on the liability (although you should point out if they are wrong!). If you go to the Law Society's website and search on "VAT" there is a 1996 VAT Guide (being updated though) which is aimed at helping solicitors. You could see if the guidance covers your scenario.

Dally

[topazz]

Thank you again Dally.

I have now been to the Law Society's website and the VAT Guide 1996. I have found the following two references which, if I can get my head round the wording, may apply:

PAGE 10
1.9.1.2.5 In no circumstances may a VAT invoice be issued by the solicitor or
the solicitors' client to the paying party who is not in law entitled to
receive an input tax credit as the services have not been rendered to
him.

The paying party should therefore receive a note of the other
party's costs in such terms that the note cannot be mistaken for a VAT
invoice issued to the paying party (for example, a photocopy of the
invoice stamped "Copy").

APPENDIX 2 - PAGE 38

19th November 1987. Press Notice No.82/87
VAT: Settlement of Disputes

The Commissioners of Customs & Excise have reviewed their policy on the VAT treatment of payments made under out-of-court settlements of disputes, after proceedings have been
commenced by service of originating process (or appointment of an arbitrator).

They now take the view that, where such payments are in essence compensatory and do not relate directly to supplies of goods or services, they are outside the scope of VAT. This will be so even if the settlement is expressed in terms that the payment is consideration for the plaintiff's agreement to abandon his rights to bring legal proceedings. But payments will remain taxable if, and to the extent that, they are the consideration for supplies by the plaintiff, e.g. where the dispute concerns payment for an earlier supply, or where the plaintiff grants future rights to exploit copyright material under the settlement.

These changes of policy may be applied from 19 November 1987.

Would you agree with me or not?

[dally]

As I see it, it all revolves on whether they have made a "supply" to you. From what you have said I do not think they have. So, they should not charge you VAT. If they wish to charge you VAT they should provide you with a VAT invoice and, if they do, I would suggest you ask them on what basis they have done so. If they still think they are right then you should take professional advice (or ask again on here!).

[topazz]

Thank you for the constructive advice.
I will let you know how I get on.

[dally]

Thanks. It would be good to hear how you get on.

[SeanJames]

Hello,

As Dally rightly points out it is whether they are making a supply to you or not. You state that:

I have made an application for disclosure of information from the former solicitors.

Which can be taken as 1 of 2 ways by the solicitors. They are either obtaining the information for you to use (in which case they can treat as a disbursement) or they are using this information on your behalf.

Now, if the solicitor has had to obtain this information from a 3rd party themselves, then they may very well be charged VAT on this. If this is then case when they pass the cost through to you they would probably pass on the VAT too; the reason being is that they have no right to recover this VAT as the supply is not for them, and you have no right to recover the VAT as the invoice which shows the VAT is not made out to you - this would be considered a disbursement as per the VAT guide - 700 section 25 or V1-3 Supply and Consideration section 10.9

So the question that I'm asking, is are you actually being charged VAT by the solicitors, or are they charging you for an invoice they've incurred that includes VAT?

Cheers
Sean

[dally]

Sean,

I was guarded because it is not 100% clear on what's happening. What I think is that the solicitor incurred their own costs (time, Court fees, and, say, experts fees) in trying to persuade the Court that they did not need to release the information to topazz when he applied to them for disclosure of information they held in relation to their former client. The Court then found for the solicitor (ie that they did not need to disclose) and then said topazz had to pay the costs of the solicitor's application to Court.

So, if that is the position (?) then I can't see a supply to topazz - can you? In effect isn't he being asked to 'compensate' them?

Dally