Complete VAT Guide for UK Law Firms

Conveyancing legal services are standard-rated for VAT at 20%. This guide works through the VAT treatment of a conveyancing matter end to end in 2026/27: your firm's fee, property searches (and why most are not disbursements after Brabners), HM Land Registry registration fees, the property transaction tax paid for the client, and CHAPS recharges.

A conditional fee agreement is a no-win-no-fee arrangement under CLSA 1990 s.58, with a success fee capped at 100 per cent of base costs and, in personal injury, a 25 per cent cap on the success fee taken from damages. The legal framework is the easy half. The hard half is accounting and tax: under FRS 102 the firm recognises revenue only when success is probable and measurable, carries CFA WIP conservatively, and the VAT tax point falls at the win, not as time is recorded.

A damages-based agreement pays the firm a percentage of what the client recovers, not a fee for time spent. The Damages-Based Agreements Regulations 2013 cap that percentage at 25% for personal-injury claims at first instance, 35% for employment matters and 50% for all other claims, and crucially each cap is inclusive of VAT. This guide explains the three caps, why the VAT must be carved out of the cap rather than added on top, how revenue is recognised under FRS 102 only when recovery is probable, and when the VAT tax point arises.

Litigation ties up a firm's cash for years: disbursements go out early and, on no-win-no-fee work, the firm's fees may not crystallise until the win. Matter-level funding products bridge that gap. This guide explains disbursement funding, third-party litigation funding and after-the-event insurance, then sets out the tax treatment of funding fees (the wholly-and-exclusively test), the VAT and SRA treatment of funded disbursements (funding does not change the eight-condition disbursement test), how funded client money must be routed under the SRA Accounts Rules, and why ATE premiums are generally not recoverable post-LASPO.

One rule governs VAT on recovered (inter-partes) costs: you claim VAT from the other side only to the extent your own client cannot recover it as input tax. A VAT-registered client recovers the VAT, so costs are claimed net; a non-recovering client claims costs VAT-inclusive and the paying party bears it. This guide explains the indemnity principle, the HMRC and Law Society agreement (VATSC11534), the CPR PD 44 VAT statement, and why the firm always invoices its own client and never the paying party.

Interest a law firm earns on its own deposits and retains on client account is an exempt supply of finance under VATA 1994 Schedule 9 Group 5, which can make the firm partially exempt and restrict input VAT recovery on overheads. This guide explains the de minimis limits (£625 per month average and no more than 50% of total input tax), the standard method, the annual adjustment, and the crucial point that interest is usually incidental and excluded, so most firms are unaffected.

Legal aid work is not VAT exempt. For a VAT-registered firm it is a standard-rated supply at 20 per cent, and the Legal Aid Agency adds VAT on top of the assessed fee, so you bill net and the VAT is funded rather than absorbed. This guide sets out the net-bill mechanic, the completion tax point, the payment-on-account nuance, and how to manage the cash-flow lag baked into publicly funded practice.

Land and buildings are normally VAT-exempt, so a firm buying or refurbishing premises often cannot recover the input VAT. The option to tax (VATA 1994 Schedule 10) makes the owner's supplies standard-rated and unlocks recovery, but it is a 20-year commitment with a 6-month cooling-off window. The Capital Goods Scheme then re-adjusts that recovery over 10 intervals for land and buildings (5 for major IT), tracking the firm's taxable use, which ties premises VAT directly to the firm's partial-exemption recovery rate.

VAT on legal fees is due by reference to the tax point under VATA 1994 s.6, not simply when the client pays. This guide explains the basic tax point (services performed), the actual tax point (earlier of VAT invoice or payment), the 14-day rule, and the solicitor-specific distinction that a request for payment on account is not a VAT invoice and creates no tax point, whereas an interim statute bill does. It covers continuous supply, cash accounting, and work spanning a rate change or the firm's registration date.

Yes. UK solicitors charge VAT at the standard 20% rate on legal services. Legal services are not exempt from VAT. Registration becomes mandatory at £90,000 of taxable turnover. We cover the headline rule, the disbursement nuance, and overseas client treatment.

A practical guide for UK solicitors on distinguishing agency disbursements from principal disbursements in conveyancing transactions, with worked examples and HMRC compliance requirements.

The Flat Rate Scheme (FRS) simplifies VAT, but for most law firms it costs more than standard VAT accounting. This guide explains how FRS works for solicitors, why the limited cost trader rule pushes most firms to a penalty rate of 16.5%, and the narrow cases where the scheme is still worth modelling.

Making Tax Digital for VAT (MTD for VAT) is mandatory for all VAT-registered law firms. This guide explains the software requirements, bridging tools, and how solicitors can ensure compliance with HMRC's digital record-keeping rules.

Cyber insurance premiums are generally an allowable expense for a solicitor law firm, provided the policy covers the firm's trade risks. This guide explains the tax position, the SRA's expectations on cyber cover, and how to treat the cost in your accounts.

A practical guide for UK solicitors on the VAT treatment of counsel fees, covering the normal position (counsel is a supply to the firm), the narrower disbursement and concession routes, and how to bill the client correctly.

A UK law firm must determine whether VAT applies to overseas clients by applying the place of supply rules in VATA 1994 s.7A and Schedule 4A. The key distinctions are whether the client is a relevant business person, where the client belongs, and whether the service relates to land. This guide explains the rules with worked examples for solicitors.

A practical guide for UK solicitors and law firm partners on VAT registration: when the £90,000 threshold triggers compulsory registration, how to time voluntary registration for maximum cash-flow benefit, and which VAT scheme suits a legal practice best.

Counsel's fee is, in the normal case, a supply to your firm, not a client disbursement. This guide sets out the default treatment (recover the input VAT, charge output VAT on your bill), the narrow disbursement exception, the long-standing HMRC concession, and why you cannot both treat the fee as a disbursement and reclaim the VAT.

A payment your firm makes for a client is a true disbursement, outside the scope of VAT, only if it passes all eight of HMRC's conditions. Fail one and it is part of your standard-rated supply. This guide sets out the test, applies the Brabners decision to search fees, and shows what is and is not a disbursement.

VAT accounting for solicitors involves specific rules around legal services, disbursement treatment, and client money handling. Understanding these requirements is essential for compliance and cash flow management.

Legal services supplied by a UK solicitor are standard-rated for VAT at 20%, with no exemption. This overview covers the 20% rate, when a firm must register, what counts as a taxable supply, how disbursements are treated and what MTD for VAT requires.

UK solicitors must register for VAT when turnover exceeds £90,000. Understanding registration requirements, timing, and compliance obligations is crucial for legal practice management.