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VAT on Legal Aid Work (Effective 4th July 2008)

Following the changes to the Solicitors Accounts Rules, Rule 21(2) in May 2005, receipts of the Standard Monthly Payments (SMP) must now be paid into the office account, rather than choosing to pay them into either the client or the office account.

This newly published practice note reflects these changes in the Rules, and come into effect from 4^th July and has been endorsed by HM Revenue & Customs.

In summary, VAT is due on regular payments to the extent that they represent either:

advance payment for cases not yet started;
cases started but not yet completed;

The proper application of the VAT regulations for solicitors is consistent with the way other businesses account for VAT. Under the regulations, two possible scenarios arise:

Where the claim submitted to the LSC is for a sum greater than the regular payment amount, VAT is payable on the amount of the submitted claim;
Where the claim submitted to the LSC is for a sum less than the regular payment amount, VAT is payable on the full amount of the regular payment.

The complications arise due to the later point where you will effectively have a credit balance on your LSC ledger i.e. the SMP to date exceeds the claims made against this.

This can be accounted for by either raising a bill at the end of the VAT quarter to take into account the VAT on the surplus balance, which would then need to be reversed on the first day of the next VAT quarter. This approach could lead to misleading profit costs when looking at monthly management figures if this ‘dummy’ bill is posted to fees on the profit & loss account. One alternative is to manually amend the VAT return, keeping a separate note as to the LSC surplus VAT adjustments made to the VAT return.

The practice note can be found by following the link below and should you require any assistance with regards to this, please contact the solicitors team at bennettbrooks on 0845 330 3200.

http://www.lawsociety.org.uk/productsandservices/practicenotes/vatonlegalaid/857.article

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VAT on Legal Aid Work (Effective 4th July 2008)

The practice note can be found by following the link below and should you require any assistance with regards to this, please contact the solicitors team at bennettbrooks on 0845 330 3200.

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	News News \| Newsletters \| Subscribe VAT on Legal Aid Work (Effective 4th July 2008) Following the changes to the Solicitors Accounts Rules, Rule 21(2) in May 2005, receipts of the Standard Monthly Payments (SMP) must now be paid into the office account, rather than choosing to pay them into either the client or the office account. This newly published practice note reflects these changes in the Rules, and come into effect from 4^th July and has been endorsed by HM Revenue & Customs. In summary, VAT is due on regular payments to the extent that they represent either: advance payment for cases not yet started; cases started but not yet completed; The proper application of the VAT regulations for solicitors is consistent with the way other businesses account for VAT. Under the regulations, two possible scenarios arise: Where the claim submitted to the LSC is for a sum greater than the regular payment amount, VAT is payable on the amount of the submitted claim; Where the claim submitted to the LSC is for a sum less than the regular payment amount, VAT is payable on the full amount of the regular payment. The complications arise due to the later point where you will effectively have a credit balance on your LSC ledger i.e. the SMP to date exceeds the claims made against this. This can be accounted for by either raising a bill at the end of the VAT quarter to take into account the VAT on the surplus balance, which would then need to be reversed on the first day of the next VAT quarter. This approach could lead to misleading profit costs when looking at monthly management figures if this ‘dummy’ bill is posted to fees on the profit & loss account. One alternative is to manually amend the VAT return, keeping a separate note as to the LSC surplus VAT adjustments made to the VAT return. The practice note can be found by following the link below and should you require any assistance with regards to this, please contact the solicitors team at bennettbrooks on 0845 330 3200. http://www.lawsociety.org.uk/productsandservices/practicenotes/vatonlegalaid/857.article Fuel duty rise is postponed Agreement with The Law Society

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