If you incur VAT charges for a payment that is not considered a payment, the only consequence for VAT accounting is that you have to record input tax. The net amount will appear on your invoice to your customer and VAT will be charged on that amount at the standard rate. This means that your customer will pay the same amount you paid to the third party. HMRC announced on 5 June 2020 that this postal concession would be officially withdrawn on 1 December 2020. HMRC points out that it is not compatible with the Brabners decision that postal search charges (which have become very unusual) continue to be treated as VAT payments in all cases. This means that in cases where you have used the search results to advise your client or issue certifications, the provision of the search results will likely be treated as a delivery for you. This would mean that costs should be treated as part of your overall legal services, which are subject to VAT at the standard rate, and not as a payment. With effect from 1 April 2017, amendments have been introduced to simplify VAT accounting procedures by allowing a single flat-rate fee for goods sold. This replaces the old two-stage procedure, where businesses charged VAT and separately the VAT paid on the goods and services they had to purchase.

If you were not charged VAT because the third party is not registered for VAT or if it was an exempt supply (e.g. bank charges), a non-withdrawal fee will still be processed as part of your service and you will need to add VAT at the standard rate if you charge this fee to the customer on your invoice. The decisive factor in determining whether a payment can be regarded as a VAT payment is therefore whether its refund by the customer forms part of the consideration for the `service supplied by you` or whether it is supplied to your customer for services provided by third parties. HMRC believes that if a lawyer has used the research to provide additional advice to the client, this is considered an integral part of the lawyer`s legal care and therefore cannot be treated as payment. This means that you will have to charge VAT if you charge these costs to the customer. This increases the cost to the customer if the search fee is not subject to VAT. Alternatively, under section 47(3) of the VAT Act 1994, the services may be considered to be supplied to and by you (i.e. You are acting as an undisclosed agent). For example, the costs of arranging bank transfers (e.g.

CHAPS and Telegraphic) are considered part of the global transmission service that a lawyer provides to his client and cannot be treated as payments for VAT purposes (Shuttleworth and Co v. Commissioners of Customs and Excise). This is because the service for which the fee is charged is provided by the bank to the lawyer and not to the client and is used by the lawyer to provide his legal services to the client. In the UK, the original standard VAT rate was 10%, but has since risen to the current rate of 20% – some goods and services are charged at a reduced rate of 5%, others are zero. The corresponding item applies to services imported by UK companies with UK VAT which is not the case for the business customer under the reverse charge mechanism. Whether the search fee can be treated as a VAT payment will only have a financial impact on your customer if the provider of the search result has not charged VAT. The fact that these fees can be treated as payment means that the cost to the customer is not increased by the standard VAT rate. Lawyers can handle many types of legal issues, including: Fees for which you are claiming a refund from a client can only be a payment for VAT purposes if your client`s refund is not consideration for your services to the client, but merely a refund of a payment you made on behalf of your client for goods or services, delivered to the customer by a third party. The VAT rate applied by businesses depends on their goods and services. The place of supply of services determines whether VAT is to be levied on a particular service and it is therefore necessary to take into account the rules determining the place where the service takes place. The place of provision of legal services is determined by the place where the supplier and the client are established. In most cases, the provision of services by lawyers is subject to VAT, so there is an unlimited right to a refund of the VAT incurred on the related costs.

However, there are cases where the VAT situation is not clear and must be taken into account to avoid errors and possible penalties. In the case of lawyers, of course, VAT – at the standard rate of 20% – is levied on the legal services they provide to clients. If the VAT invoice for payment is not addressed to your customer, your customer is also prevented from reclaiming input VAT because they do not have a valid VAT invoice, even if the services are related to the customer`s business and the customer is registered for VAT.