Personal injury clients will not have to pay VAT on the cost of medical reports following a successful appeal by a Nottingham law firm, supported by the Law Society, in a tax tribunal last week.
Nottingham personal injury and clinical negligence firm Barratt Goff & Tomlinson (BGT), supported by written submissions from the Law Society, successfully challenged changes by HM Revenue & Customs (HMRC) to the way medical reports and records to be used in litigation are assessed for VAT.
The fee that BGT and other firms paid to medical experts for reports and records had previously been accepted by HMRC as a disbursement, and so was free of VAT. However, in August 2008 HMRC asserted that because a firm ‘perused the records and reports as an integral part of the legal services it provided’, VAT should be paid on them.
BGT and the Law Society told the Manchester tax tribunal last month that the ‘use’ of medical reports and records was part of the legal service provided, and VAT was already charged on this as part of the tax payable on a lawyers’ fees. However, they argued that ‘obtaining’ the reports was a separate service carried out, as an agent, on behalf of the injured party, and any expense incurred was merely a disbursement, and so not subject to VAT. The tribunal accepted these arguments.
The ruling also brings certainty to other practice areas such as conveyancing, where the cost of obtaining local searches has always been treated as a disbursement for VAT purposes.
Law Society chief executive Desmond Hudson said: ‘We are relieved that common sense has prevailed. The approach taken by HMRC would have increased the costs of pursuing personal injury and clinical negligence cases. Many firms are likely to be affected by the outcome of the case, and so it was in the interests of a significant proportion of the profession for the Society to intervene.’