Q:
Hi all,
I am a non vat registered sole trader providing vat registered Solicitors with a service. Basically I cost their files to ascertain the value of the work that they have done. My fee can be reclaimed by the Solicitor from the party who is to pay their fees. My question is this: Does the Solicitor add VAT onto my fee when he submits his bill for payment from the party paying his fee.
Many thanks.
A:
In principle yes if the recharge to the client forms part of the consideration for the solicitor’s taxable supply of services.
Disbursements don’t form part of the consideration so aren’t liable to VAT. This is because the recharge is simply a mechanism to enable the solicitor to collect from the client the cost of something that is the legal liability of the client to pay. A good example would be stamp duty land tax. But of course you need to be certain that the recharge is a true disbursement – see VAT Notice 700: The VAT Guide section25.1 here http://tinyurl.com/2c4dyk for guidance about what is and isn’t a disbursement for VAT purposes.
However costs that the solicitor incurs in the course of carrying out his business – such as overhead costs, travel costs, subcontractors’ fees – form part of the consideration for his supply, even if separately itemised, and are liable to VAT.
If your engagement is with the solicitor rather than his client, then a solicitor would treat the recharge of your fees as part of the charge for his supply and therefore liable to VAT, the same as any other cost that he incurs in the course of carrying out his business. So while I can’t give a definitive answer to your query because I haven’t seen your engagement letters/contracts, it sounds to me as though the solicitors would be correct in treating the recharge of your fees in the same way as another cost that they incur in the course of carrying out their business and thus it would be liable to VAT.
Marie
26 September 2010