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VAT on legal aid work

15 December 2009

The legal aid contracting system has evolved since monthly payment arrangements were first introduced by the Legal Services Commission (LSC), including the terminology used. The system now refers to regular payments rather than standard monthly payments (SMPs).

The new rule 21(2) of the Solicitors' Accounts Rules 1998 changed the treatment of these regular payments. This new rule came into effect on 1 May 2005. You must now pay these into your office account, rather than choosing to pay them into either your client or office account.

There is now a simplified method of accounting for VAT. This practice note outlines the process.

Note: VAT calculations contained within this practice note assume a VAT rate of 17.5 per cent.

Legal status

This practice note is the Law Society's view of good practice in this area. It is not legal advice.

Practice notes are issued by the Law Society for the use and benefit of its members. They represent the Law Society's view of good practice in a particular area. They are not intended to be the only standard of good practice that solicitors can follow. You are not required to follow them, but doing so will make it easier to account to oversight bodies for your actions.

Practice notes are not legal advice, nor do they necessarily provide a defence to complaints of misconduct or of inadequate professional service. While care has been taken to ensure that they are accurate, up to date and useful, the Law Society will not accept any legal liability in relation to them.

For queries or comments on this practice note contact the Law Society's Practice Advice Service.

SRA Principles

There are ten mandatory principles which apply to all those the SRA regulates and to all aspects of practice. The principles can be found in the SRA Handbook.

The principles apply to solicitors or managers of authorised bodies who are practising from an office outside the UK. They also apply if you are a lawyer-controlled body practising from an office outside the UK.

Terminology

Must - A specific requirement in the Solicitors' Code of Conduct or legislation. You must comply, unless there are specific exemptions or defences provided for in the code of conduct or relevant legislation.

Should - Good practice for most situations. If you deviate from this, you must be able to justify why this is appropriate, either for your firm, or in the particular retainer.

May - A non-exhaustive list of options for meeting your obligations. Which option you choose is determined by the risk profile of the individual firm, client or retainer. You must be able to justify why this was an appropriate option to oversight bodies.

The Law Society also provides a full glossary of other terms used throughout this practice note

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Practice Advice Service

The Practice Advice Service provides a dedicated support line for Law Society members and employees of law firms. Call us on 020 7320 5675.

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