VAT rate on legal costs should be apportioned

I continue to see, on a virtually daily basis, bills of costs and schedules that continue to wrongly claim VAT at 20% throughout despite the fact that some of the work was done prior to 2011.

How long will it take for all Costs Lawyers and law costs draftsmen to understand how this works? It’s not as though I haven’t written about this often enough.

Hopefully the decision of His Honour Judge Kay QC in Lloyd Fraser (Ply Chain) v Hutton (click for judgment) (13/9/11, Luton County Court) will help to reduce the scope for any argument on this subject.

The District Judge as first instance had allowed 20% throughout on the basis the solicitors were entitled to elect what rate to charge. Allowing the defendant’s appeal, and making reference to Costs Practice Direction 5.8 (which states: “In any case in which an election to charge at the lower rate is not made, such a decision must be justified to the court assessing the costs”) it was held:

“In my judgment the District Judge was obliged to have regard to the Costs Practice Direction. The argument was advanced that it was unreasonable for the receiving party here, the claimant’s solicitors, not to apportion. That decision, in the wording of the Practice Direction, must be justified. There was no attempt to examine what the justification was in this case for not apportioning to the lower rate. It was simply accepted as a right to do so because there was a power to elect.

He was not directed to the provisions of the Costs Practice Direction, and therefore did not direct his mind to that very argument. It is a point that seems to me properly taken on the appeal, and as I have heard Mr Astor, he is not suggesting that the argument itself is incorrect. There is no justification put before the court at the hearing before the District Judge, or now before me today, as to why the receiving party would be justified in not apportioning so that VAT is charged at the lower rate.

I am, therefore, satisfied that the District Judge was wrong in the conclusion the reached, and I allow the appeal.”

[As an aside, the copy of the judgment I have seen, and as linked to above, gives the claimant’s name as “Lloyd Fraser (Ply Chain)”. This doesn’t make much sense as an individual’s name and a quick Google search suggests this is possibly a typographical error and should read “Lloyd Fraser (Supply Chain) Limited”. Although the judgment refers to this being a “personal injuries action”, there was presumably, at least in part, a claim made on behalf of the named company. If that is so, and assuming the company was VAT registered, then no VAT should have been claimed in respect of any work done on behalf of the company in any event. Strange.]

3 thoughts on “VAT rate on legal costs should be apportioned

  1. Whilst I agree with the sentiment Simon (I see no reason to not split the bill other than 1. Laziness or 2. profiteering) I hardly see this as a binding authority

    The issue will i suspect remain hit and miss and dependent on the Judge on the day

  2. Simon, I think the answer to your point about the company is that the heading is incorrect. The company is obviously the paying party appellant and Mr Hutton the Respondent, who presumably was the succesful Claimant below. Not the first court to get its claimants and appellants mixed up.

  3. Even without this helpful appeal decision I thought the PD was pretty clear.

    Yet in attempting to justify not apportioning, I have recently seen some replies (from people who should know better) that merely cite para 5.7 of the PD when it is misleading without para 5.8.

    Some people it appears will literally say anything not to give an inch on detailed assessment.

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