VAT on expert reports
Does a recent tax tribunal decision mean experts
can stop adding VAT to their bills?
A flurry of calls on the Register Helpline raised the question of whether medical experts, whose medico-legal reporting had only come within the ambit of VAT for the first time in May 2007, could now stop charging VAT because of a recent tax tribunal decision. The answer is ‘No!’
Medico-legal reporting is still a service that attracts VAT, and any doctor who is VAT registered must continue to charge the tax. But the good news is that the decision does mean that personal injury claimants will not have to pay VAT on the cost of medical reports. That could represent a saving of hundreds of pounds now that VAT is levied at 20%.
Barratt Goff & Tomlinson (BGT), a personal injury and clinical negligence firm based in Nottingham, successfully challenged changes by HM Revenue & Customs (HMRC) on the way medical reports and records to be used in litigation are assessed for VAT. Historically, when a law firm paid for a medical expert’s report it did so ‘on behalf of’ the client. So, the argument went, when passing on the cost to the client it should be treated as a disbursement and so fall outside the scope of VAT. This treatment had long been accepted by HMRC. However, in August 2008, HMRC asserted that because a law firm peruses the reports as an integral part of the legal services it provides, obtaining the report does not meet the (rather onerous) requirements of what can be treated as a disbursement. So VAT should be paid by the client to the law firm when the cost of the report is passed on.
BGT, assisted by an unusual intervention by the Law Society of England and Wales, told the Manchester tax tribunal that the ‘use’ of medical reports and records was part of the legal service provided. Indeed VAT was already charged on this as part of the tax payable on a lawyer’s fees charged to the client. But ‘obtaining’ the reports was, they argued, a separate service carried out as an agent on behalf of the claimant, so the expense incurred was a disbursement. The tribunal accepted these arguments.
So now the expert charges VAT on his fee, the lawyer pays the VAT to the expert, the expert pays the VAT to HMRC and the lawyer claims the VAT back from the HMRC. Subsequently, the lawyer charges his client the cost of the report (nett of VAT) as a disbursement and that is outside the scope of VAT. Looked at like this, it is clear just how little value there was in adding all the extra administrative burden that comes with VAT registration to the medico-legal reporting sector. The Government can receive hardly any revenue; indeed it may well lose revenue overall because all the doctors can now reclaim the VAT they pay out on computers, rent, etc. Ah well, so much for joined up thinking!