VAT for Solicitors

Solicitors and law firms operate within a VAT framework that includes long-established principles, detailed HMRC guidance and a substantial body of case law. While most legal services fall within the scope of VAT at the standard rate, the VAT treatment of disbursements, expenses incurred on a client’s behalf, and specific costs such as land registry fees, property searches and court fees continues to cause uncertainty across the legal sector.

VAT for solicitors requires careful analysis of who receives the supply, who is liable to pay, and whether an expense represents a solicitor’s own supply or a genuine VAT disbursement. Errors in this area frequently result in incorrect VAT being charged, input tax being reclaimed incorrectly, or HMRC challenges during compliance checks. The VAT People work with law firms across England and Wales to review VAT positions, resolve historic issues and assist law firms in applying the correct VAT treatment consistently.

To speak to our expert team of VAT specialists get in touch by calling 0161 477 6600 or filling out an online contact form. We will get back to you at a time that is convenient for you.

Understanding VAT in the legal sector

For VAT purposes, solicitors are taxable persons when they supply legal services in the course of business. Where a law firm is VAT registered, it must charge VAT on its taxable supplies and account for output tax on its VAT returns. Most services provided by a solicitor are standard-rated, meaning VAT is charged at 20% unless a specific exemption or zero-rating applies.

The complexity arises not from the headline VAT rate but from how costs incurred during a matter are treated. Law firms regularly incur expenses such as property searches, medical reports, telegraphic transfer fees and land registry fees while acting on a client’s behalf. Determining whether VAT should be added depends on whether the solicitor pays the expense as agent for the client or incurs the cost as part of its own supply.

The VAT treatment of disbursements has been shaped by HMRC guidance, Law Society practice notes and decisions of the First Tier Tribunal and higher courts. Applying the normal rules correctly requires law firms to assess liability properly incurred, confirm whether the client authorised the expenditure, and check how the underlying supplier has charged VAT.

What is the VAT rate for solicitors?

The standard rate of VAT at 20% applies to most legal services supplied by solicitors. Where a law firm is VAT registered, VAT must be charged on taxable supplies of legal services provided to clients.

This includes advisory work, litigation services, conveyancing, probate, employment law and commercial legal services. VAT is chargeable regardless of whether the client is an individual, a business, or another taxable person, subject to the place of supply rules and any specific exemptions that may apply.

Where a law firm is not VAT registered, VAT cannot be charged. However, once the VAT registration threshold is exceeded, VAT must be added from the effective date of registration. Failure to register on time may result in HM Revenue & Excise Commissioners raising assessments for VAT that should have been charged, together with interest and penalties.

Do solicitors have to be VAT registered?

Solicitors must register for VAT when their taxable turnover exceeds the VAT registration threshold in a rolling 12-month period. This includes standard-rated and zero-rated supplies but excludes exempt income and amounts outside the scope of VAT.

Some law firms choose to register voluntarily, particularly where their clients are VAT registered and able to recover VAT charged. Voluntary registration allows solicitors to reclaim input VAT on costs incurred in the course of making taxable supplies, provided valid VAT invoices are held.

Once VAT registered, a solicitor must submit VAT returns, charge VAT on taxable supplies, and comply with Making Tax Digital requirements. The VAT People regularly assist law firms with VAT registration, deregistration and reviewing whether registration remains appropriate as a firm’s VAT position changes.

Why do solicitors add VAT?

Solicitors add VAT because VAT law requires VAT-registered businesses to charge VAT on taxable supplies of services provided. Legal services are not exempt under VAT law, and therefore VAT must be added unless the supply falls outside the scope of UK VAT or is subject to a specific relief.

Clients often question VAT added to bills where large disbursements are involved. In such cases, the issue is rarely the legal services themselves but whether certain costs should be treated as VAT disbursements or form part of the solicitor’s own supply.

Clear explanation, correct invoice presentation, and compliance with HMRC guidance reduce the risk of disputes with clients and challenges from HMRC. The VAT People advise law firms on applying the correct VAT treatment, presenting fees and disbursements accurately, and preparing VAT returns that reflect HMRC requirements while supporting an optimal VAT position.

VAT treatment of disbursements for solicitors

The VAT treatment of disbursements is one of the most scrutinised areas of VAT for solicitors. Not all costs described as disbursements qualify as VAT disbursements for VAT purposes.

For a cost to be treated as a VAT disbursement, specific conditions must be met. The solicitor must have acted as agent for the client, the liability must be properly incurred by the client, and the client must have known the solicitor would incur the cost on their behalf. The amount charged to the client must be only the exact amount paid to the third party, with no mark-up.

Where these conditions are met, the cost falls outside the scope of VAT, and no VAT is added by the solicitor. Where the conditions are not met, the cost becomes part of the solicitor’s own supply, and VAT must be charged.

The Law Society practice note and HMRC guidance

The Law Society has issued practice notes on the treatment of disbursements, which reflect HMRC’s position and relevant case law. A former practice note clarified that many costs previously treated as disbursements do not meet HMRC’s criteria and should be subject to VAT.

HMRC has reinforced this position following decisions of the First Tier Tax Tribunal, including cases involving property searches and medical reports. These cases confirmed that where a solicitor receives services provided to them, rather than directly to the client, the onward recharge is a taxable supply subject to VAT.

The VAT People regularly assist law firms in reviewing historic treatment of disbursements to confirm whether VAT was charged correctly and to address any exposure arising from past practices.

Property searches and VAT

Property searches remain a common area of confusion. Local land charges, personal search fees, electronic property searches and postal searches are often incurred during property transactions.

Where the search is supplied to the solicitor and used as part of the solicitor’s services provided to the client, it forms part of the solicitor’s own supply. VAT must be charged on the VAT inclusive amount, regardless of whether the search provider charged VAT.

In contrast, where a personal search is carried out directly for the client and the solicitor merely pays the search fee as agent, it may qualify as a VAT disbursement, provided all HMRC conditions are met.

Land registry fees are generally treated as VAT disbursements, as they are statutory fees with no VAT element. However, office copy entry fees and other land registry charges must still be reviewed to confirm the correct treatment.

Court fees and VAT disbursements

Court fees are another area frequently reviewed by HMRC. In most cases, court fees are treated as VAT disbursements because they represent a statutory charge incurred by the client, with no VAT charged by the court.

However, correct treatment depends on the solicitor having acted as agent and the cost being separately itemised on the VAT invoice. Where court fees are bundled into a single charge or incorrectly described, HMRC may argue that VAT should have been charged.

Medical reports and expert fees

Medical reports obtained during litigation are often supplied to the solicitor, not directly to the client. In such cases, the solicitor receives services provided and makes an onward supply to the client as part of the solicitor’s services. VAT must be charged on the full amount recharged, even if the medical provider did not charge VAT.

This position has been upheld in tribunal decisions and forms part of HMRC’s settled view on the treatment of disbursements.

Telegraphic transfer fees and bank charges

Telegraphic transfer fees charged by solicitors to clients are generally subject to VAT. Although bank charges themselves may be exempt from VAT, the solicitor’s charge for arranging a telegraphic transfer is treated as part of its own supply of services.

Where a solicitor pays a bank fee and recharges it to the client, VAT must be added unless the conditions for a VAT disbursement are met, which is rarely the case in practice.

VAT invoices and record-keeping for law firms

Law firms must issue valid VAT invoices for taxable supplies. A valid VAT invoice must include all required information, including the VAT registration number, a unique invoice number and a clear breakdown of VAT charged.

Where disbursements are included, they should be separately itemised to distinguish them from taxable fees. Failure to issue a valid VAT invoice can prevent clients from reclaiming input tax and may result in HMRC penalties.

Maintaining accurate records is essential, particularly where large volumes of costs incurred are recharged to clients. The VAT People assist law firms in reviewing billing systems to confirm VAT invoices meet HMRC requirements.

Input VAT and reclaiming input tax

VAT registered solicitors can reclaim input VAT on costs incurred in making taxable supplies, provided the VAT incurred relates to business activity and a valid VAT invoice is held.

Input VAT recovery is restricted where costs relate to exempt supplies or non-business activities. While most legal services are taxable, law firms involved in exempt activities, such as certain estate duty work or non-chargeable advisory services, may need to consider partial exemption rules.

Incorrect reclaiming input tax remains a common area of HMRC challenge during VAT inspections. The VAT People review related input tax claims to confirm compliance and identify opportunities for correction.

Case law and tribunal decisions affecting solicitors

VAT for solicitors has been shaped by extensive case law, including decisions of the First Tier Tribunal and higher courts. Cases involving British Airways, property searches and onward supply have reinforced HMRC’s position that many recharged costs form part of a solicitor’s own supply.

These decisions have clarified that VAT treatment depends on the reality of the supply, not how it is described on an invoice. Treating disbursements incorrectly may result in HMRC raising assessments covering multiple VAT periods.

The VAT People monitor case law developments and apply them in practical reviews for law firms.

VAT returns and HMRC scrutiny

Law firms are subject to routine HMRC compliance checks, particularly where VAT returns show repayment positions or fluctuating VAT liabilities. Areas frequently reviewed include treatment of disbursements, VAT invoices and reclaiming input tax.

Where HMRC identifies errors, assessments may be raised and penalties applied. In disputed cases, matters may proceed to the First Tier Tribunal.

The VAT People support law firms during HMRC enquiries, disputes and tribunal proceedings, including Alternative Dispute Resolution where appropriate.

How The VAT People assists law firms

The VAT People assists law firms with VAT advice that reflects both technical VAT law and practical billing realities. Our team includes advisers with decades of experience within HMRC and private practice, supporting solicitors across the legal sector.

Our services include: