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I’m tendering to join an insurance company panel. When will it be liable to pay VAT on my invoice?

My firm is tendering to join an insurance company panel. The work will involve advising on policy wording interpretation and disputes with policyholders, and defending employers’ liability claims. I’ve been told that my VAT invoice must be issued in the policyholder’s name and forwarded to the company for payment. Is this correct?

Guidance issued by HM Revenue and Customs (HMRC) makes clear that the treatment of VAT depends upon both:

  • the nature of the legal advice being supplied to the insurer
  • the VAT status of the policyholder

The nature of the legal advice

Where an insurer gets legal advice in connection with policy interpretation or in respect of policyholder disputes, the supply of legal services is provided to the insurer. The bill, including the VAT element, should be addressed to the insurer and paid by the insurer.

In the case of liability and subrogation claims, HMRC generally treats the legal services as supplied (for VAT purposes) to the policyholder. The VAT invoice should be addressed to the policyholder.

The VAT status of the policyholder

Where the claim relates to the policyholder’s taxable business and the policyholder is VAT registered, the policyholder should arrange for payment of the VAT element within the bill to be paid directly to the solicitor within 90 days of delivery of the invoice.

The policyholder should be entitled to an input tax credit in respect of this payment.

In such cases, the insurer is only liable to pay your fees exclusive of VAT, and should be sent a copy of the invoice (clearly showing that it’s not a VAT invoice) along with a request to pay your fees exclusive of VAT.

You may be able to seek payment of the VAT element within your invoice from your insurer client if the policyholder:

  • is not VAT registered or would otherwise not be able to reclaim VAT on your fees (for example, if they provide exempt or partially exempt services or the claim does not relate to their business), or
  • fails to pay the VAT invoice within 90 days after you have used your best endeavours to get payment

For more information, see HMRC’s guidance insurance (VAT notice 701/36) issued in February 2013 and updated on 31 December 2020.

Disclaimer

While every effort has been made to ensure the accuracy of the information in this article, it does not constitute legal advice and cannot be relied upon as such. The Law Society does not accept any responsibility for liabilities arising as a result of reliance upon the information given.

Have you got a practice question?

Call the Practice Advice Service on 020 7320 5675 or email practiceadvice@lawsociety.org.uk.

The Practice Advice Service is staffed Monday to Friday from 9am to 5pm.

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Disclaimer

While every effort has been made to ensure the accuracy of the information in this article, it does not constitute legal advice and cannot be relied upon as such. The Law Society does not accept any responsibility for liabilities arising as a result of reliance upon the information given.

Have you got a practice question?

Call the Practice Advice Service on 020 7320 5675 or email practiceadvice@lawsociety.org.uk.

The Practice Advice Service is staffed Monday to Friday from 9am to 5pm.