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VAT treatment of disbursements and expenses for law firms

16 October 2019

The Law Society has recently updated its guidance on the VAT treatment of solicitor’s disbursements following decisions in cases such as Brabners and British Airways v Prosser. The VAT treatment of costs as disbursements can be a complicated area and recent decisions have inferred that a narrower interpretation of disbursement rules should be applied.

What action should law firms take?

The guidance below is a useful summary and is only meant to be a guide while further clarity is received from HMRC (i.e. it is not official guidance from HMRC). As this is often an area of exposure for law firms it would be worth reviewing how the firm treats expenses/disbursements incurred when providing services for clients.

BDO can also assist by:

  • Reviewing whether the firm’s current treatment could be at risk of a challenge from HMRC (in line with the conditions for disbursement treatment and recent case law); and
  • Reviewing whether the firm’s current processes to identify disbursements are sufficiently robust to reduce the risk of an exposure.

For more information on this development and any other VAT issues affecting your firm, get in touch with your usual BDO contact or one of our VAT specialists.