VAT on Court cost awards at differing rates

OJ1

We had a cost award against our organisation. The award comprised of payments to a number of professionals for their services with the invoice coordinated by the appellant. An invoice was sent to us by the appellant which simply added 20% VAT to the total net amounts.

It later transpired that two of the professionals were not VAT registered and so we asked for the invoice to be reissued with VAT applied to those individuals that are VAT registered and those non-VAT registered professionals to be subtotalled separately.

The appellant is insistent that they used the correct treatment originally, but the guidance is not clear.

Any advice would be greatly appreciated.

O

NeilH

Hi

Was your contract with the appellant and were the other professionals working for them (e.g. as contractors), or, did they work individually and directly for you and the appellant is literally acting as a collector of their fees? How were you originally invoiced/would have been invoiced for the fees?

The way I interpret it is... If the "others" worked for the appellant then he/she is making a supply of their service and should follow their own VAT status for the full value (apply 20%). If they are purely collecting on behalf of the "others", this is similar to a disbursement and they should treat the charges according to the VAT status of the other professionals.

Have you asked the appellant to justify their VAT treatment?

Neil

OJ1

HI Neil,

Our initial contract was with the appellant, and the other professionals were working for the appellant in this instance.

The appellant has said that as they are charging costs to a third party (my organisation), the full amount is liable for VAT, but this doesn't sound right to me.

Firstly, there has not been a supply of services from them to us (we're simply reimbursing costs as instructed by courts), and secondly if they are VAT registered they stand to benefit as they can recover costs from both HMRC and my organisation.

Please let me know if you know of any guidance/ past cases that might apply here.

Thanks

O

NeilH

Hi

I'm not aware of any specific cases, only the usual instances of charging VAT.

It would all depend on whether the other professionals were working directly for the appellant OR if the appellant had arranged for them to provide you with services and was collecting payment on their behalf. The former would make the full value subject to VAT, the later could be considered a disbursement - if it was a disbursement then VAT should be charged according to the individual supply of service from each professional. It would also depend on who had ultimate responsibility for paying the other professionals. When the award was made, was it made as individual awards to each professional?

Have a look at https://www.gov.uk/vat-costs-or-disbursements-passed-to-customers , this will clarify if the charges from the other professionals were disbursements or not – the details are written from the point of view of your appellant.

I’m not sure why you think the appellant will benefit from the VAT – if full VAT is charged on the full value it will have to be paid over to HMRC by the appellant and the appellant will only be able to reclaim VAT on costs they have incurred (which they can do anyway).

Have you tried posting this query on Accounting Web in the “Any Answers” section? You might have a tax specialist pick it up.