14.1 Value Added Tax

Every taxable person, as defined by the Value Added Tax Act 1994, must be registered, and whether or not so registered, a taxable person who supplies goods or services in the course of business incurs a liability to Value Added Tax (VAT) thereby.

14.2 The registered person concerned or the person required to be registered has the responsibility for making a charge to VAT in a proper case and for accounting to HM Customs and Excise for the proper amount of VAT.

14.3 The following requirements apply to all bills of costs lodged for determination or assessment.

14.4 VAT registration number

The number allocated by HM Customs and Excise to the person registered under the Act must appear at a prominent place at the head of every bill of costs, fee sheet, account or voucher of which VAT is being included as part of a claim for costs.

14.5 Action before determination or assessment

VAT should not be included in a claim for costs in a between the parties bill if the receiving party is able to recover that VAT as input tax. Where the receiving party is able to recover only a proportion of the VAT as input tax then it is only the balance of the VAT payable that should be claimed in the bill.

14.6 The receiving party has the responsibility for ensuring that VAT is not claimed in their between the parties bill for costs unless the receiving party is unable to recover the VAT or a proportion thereof as input tax. Where costs are payable out of public funds the costs officer or determining officer must, at the assessment, properly enquire as to whether the receiving party has done so.

14.7 In the case of a dispute as to whether VAT is properly claimed in a between the parties bill of costs the receiving party must provide a certificate, signed either by his solicitors or the auditors in the form set out in Schedule 4 to the Practice Direction http://www.courtservice.gov.uk/cms/media/costs_pd_180504.pdf . Where the receiving party is a litigant in person who is claiming VAT, the certificate should be sought from HM Customs and Excise and wherever possible a statement to similar effect should be produced at the assessment hearing.

14.8 Where there is a dispute as to whether any service, in respect of which the charge proposed to be made is either zero rated or exempt, the views of HM Customs and Excise should be obtained and made available at the assessment. In the case of between the parties bills the responsibility for providing that indication lies on the receiving party but in the case of a bill from a solicitor to his own client such application should be made by the client.

14.9 Form of bill of costs where VAT rate changes

Where there is a change in the rate of VAT Sections 6 and 88 of the Value Added Tax Act 1994 http://www.legislation.hmso.gov.uk/acts/acts1994/Ukpga_19940023_en_1.htm gives the supplier of goods and services, in most circumstances, the right to elect whether the new or old rate of VAT should apply to a supply where the basic and actual tax points span a period during which there has been a change in VAT rates.

14.10 It will be assumed, unless there is a contrary indication in writing, that an election to take advantage of those provisions and to charge VAT at the lower rate has been made. Where an election to charge at the lower rate is not made the decision must be justified in accordance with the principles of assessment that are applicable to the basis upon which costs are ordered to be assessed.

14.11 Apportionment

All bills of costs, fees and disbursements on which VAT is included must be divided into separate parts so as to show work done before, on and after the date or dates from which any change in the rate of VAT takes effect. In the case of a lump sum charge for work that spans a period during which there has been a change in VAT rates, reference should be made to paragraphs 30.9 and 30.10 of HM Customs and Excise Notice 700 (April 2002 Edition) (or any revised edition of such notice) and if necessary an apportionment should be made of that lump sum.

14.12 Disbursements

VAT attributable to any disbursements, such as an experts’ report, must be shown as a separate item in any receipt or voucher unless VAT is not claimed in a between the parties bill.

14.13 General disbursements, such as for instance postages and fares, which are normally treated as part of a solicitors overheads and so included in his profit costs should be charged with VAT even though they bear no tax when the solicitor incurs them. The costs of travel by public transport on a specific journey for a particular client, when it forms part of the service rendered by a solicitor to his client and charged in his bill, will attract VAT.

14.14 Queries as to whether particular items or expenses are subject to VAT may be resolved by consulting the VAT Guide (HM Customs and Excise Notice 700 – April 2002 Edition, para 25.1 or any revised edition of that Notice).

14.15 CDS Funding

Where services are supplied by a taxable person pursuant to a criminal contract or with the benefit of CDS Funding, VAT is payable if the assisted person belongs in the UK or other Member State of the European Union and is a private individual or receives the supply for non-business purposes. The place where a person belongs is determined by section 9 of the Value Added Tax Act 1994 http://www.legislation.hmso.gov.uk/acts/acts1994/Ukpga_19940023_en_1.htm

14.16 Tax invoice

Counsel’s fee sheet or a solicitor’s bill of costs as determined or assessed, together with the payment advice supplied by the court as to the fees allowed on determination or assessment, will constitute a tax invoice where costs are payable out of the LSC Fund or Central Funds.

14.17 Appeal

Where fees or costs as determined or assessed are varied on appeal the appropriate VAT charge will be amended by the costs officer or determining officer.

14.18 Vouchers

Photostat copies of receipted accounts will be sufficient evidence for payment when disbursements are vouched in cases where the original receipted accounts for those disbursements are retained as tax invoices.

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.

14.20 Where a bill, as described in the preceding paragraph, is presented for agreement, determination or assessment, VAT should not be claimed save where it has been paid on disbursements.

14.21 Government Departments

On an assessment between the parties where costs are being paid to a Government Department in respect of services rendered by its legal staff VAT should not be added since such services do not attract VAT.