Confirmation and review of VAT concessionary treatment for counsel’s fees – share your experiences

HM Revenue and Customs (HMRC) has confirmed that a VAT concession for counsel’s fees stands but is under review. Share your feedback to inform HMRC’s review.

The concessionary treatment for counsel's fees paid into and kept in a client account was agreed between HM Customs and Excise (as it was then known), the Bar Council and the Law Society at the time VAT was first introduced.

The concession was published in the Gazette on 4 April 1973 and is not set out in any HMRC manual or VAT notice.

HMRC has recently confirmed to us that the concession still currently stands. However, HMRC is reviewing the concession to consider whether it should be withdrawn.

If the concession is withdrawn, HMRC has confirmed that it would do so prospectively, with appropriate advance notice given.

Little is known about the use of the concession and HMRC would like to understand more about:

  • the extent and ways in which you're currently using it
  • its benefits or deficiencies

How to get involved

We would welcome any information or comments from you that we could share with HMRC to inform its review.

Email James Reynolds, our tax law and financial services policy adviser, by Thursday 30 September 2021 if you'd like to provide information or comments.

Background: what is the concession?

The concession means that there are two ways in which you may treat counsel's fees for VAT purposes:

1. Treating counsel’s fee as your own expense (normal VAT accounting)

You may treat the fee as your own expense and reclaim the VAT element as input tax.

When you deliver your own sales invoice to your client, the value of the supply for VAT purposes is the value of your own costs, plus the tax-exclusive value of counsel’s fees.

VAT, where applicable, is then added to both.

2. Treating counsel’s fee as a disbursement for VAT purposes (using the concession)

You may treat counsel's advice as supplied directly to your client and the settlement of the fees as a disbursement for VAT purposes.

Counsel's VAT invoice (receipted fee notes) may be amended by:

  • inserting on the fee note your client's name and the word ‘per’ immediately preceding your own name and address; or
  • crossing out your name and address and replacing it with the name and address of your client

The fee note from counsel will then be recognised as a valid VAT invoice in the hands of your client (who can reclaim the VAT if registered) and no VAT record need be kept in your account ledgers. You should keep a copy of the VAT invoice.

Extra considerations may arise where your underlying client is based outside the UK.

  • Where you consider that the services of counsel, if supplied directly to the client, would be outside the scope of UK VAT, you must certify counsel's fee note to this effect and ask your client to pay the VAT-exclusive amount only. You should advise counsel that VAT is not due on their services because of the client's place of belonging; you must provide them with appropriate commercial evidence of the client’s place of belonging
  • Alternatively, you may ask counsel’s clerk to cancel the original fee note and submit a new one; this will have no adverse VAT implications in that counsel’s fee note only becomes a tax invoice when receipted.

In either case, the fee note will have to be addressed to the ultimate client.

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