Why Place of Supply Matters for Your Law Firm

If your UK law firm acts for a client based outside the United Kingdom, you cannot simply assume the work is outside the scope of VAT. The tax treatment depends on the place of supply rules set out in UK VAT law (implementing the EU Principal VAT Directive, as retained post-Brexit). Getting this wrong can mean undercharging VAT and facing an HMRC assessment, or overcharging VAT and losing a competitive advantage.

For a solicitor or law firm, the core question is: where is the supply of your legal services treated as taking place? If the place of supply is the UK, you must charge UK VAT at 20% (unless an exemption applies). If the place of supply is outside the UK, the supply is outside the scope of UK VAT, and you do not charge VAT.

This article explains the rules for B2C overseas and B2B overseas legal services, with worked examples. It also covers the interaction with the place of supply rules for solicitors handling cross-border work.

The Basic Rule: B2B vs B2C

UK VAT law distinguishes between supplies to a business customer (B2B) and supplies to a non-business customer (B2C). The distinction is critical because the place of supply rules differ.

B2B Supplies (Business to Business)

For legal services supplied to a business customer, the place of supply is where the customer belongs. If your client is a business established outside the UK, the place of supply is outside the UK. You do not charge UK VAT.

However, you must obtain and retain evidence that the client is a business. HMRC expects you to hold the client's VAT registration number (if they have one), or other commercial evidence such as a company registration number, business letterhead, or a signed statement from the client confirming their business status.

Example: A UK law firm advises a German GmbH on a commercial contract. The German company provides its VAT number (DE123456789). The supply is B2B, place of supply is Germany. The UK firm does not charge VAT. The German client may account for VAT in Germany under the reverse charge mechanism.

B2C Supplies (Business to Consumer)

For legal services supplied to a non-business customer (a private individual), the place of supply is where the supplier belongs. If your law firm is established in the UK, the place of supply is the UK. You must charge UK VAT at 20%.

This applies even if the client is resident overseas. A UK solicitor acting for a private individual in France, the USA, or Australia must charge UK VAT on the fees.

Example: A UK law firm acts for a French resident who is selling a UK property. The client is a private individual (B2C). The place of supply is the UK. The firm must charge 20% UK VAT on its legal fees.

There is an important exception for services relating to land. If your legal services relate to a specific piece of land, the place of supply is where the land is located, regardless of whether the client is B2B or B2C.

For a UK solicitor handling a conveyancing transaction for a UK property, the land is in the UK. The place of supply is the UK. You charge UK VAT, even if the client is an overseas business.

Example: A UK law firm handles the purchase of a London flat for a Hong Kong company. The land is in the UK. The place of supply is the UK. The firm charges 20% UK VAT, even though the client is an overseas business.

If the land is outside the UK, the place of supply is outside the UK. No UK VAT is charged.

Example: A UK solicitor advises a UK client on the purchase of a villa in Spain. The land is in Spain. The place of supply is Spain. The UK firm does not charge UK VAT. The client may need to account for Spanish VAT or equivalent tax.

Practical Steps for Your Law Firm

To apply the correct VAT treatment, follow these steps for each overseas client engagement:

  • Identify the client type: Is the client a business (B2B) or a private individual (B2C)? Obtain evidence of business status for B2B claims.
  • Determine the nature of the service: Does the service relate to land? If yes, the place of supply is where the land is located.
  • Apply the place of supply rule: For B2B services not relating to land, place of supply is where the client belongs. For B2C services not relating to land, place of supply is where your firm belongs (UK).
  • Document your reasoning: Keep a clear record of your VAT treatment decision, including the evidence you relied on. This is essential for HMRC compliance.
  • Issue the correct invoice: If no UK VAT is chargeable, issue an invoice stating "Outside the scope of UK VAT" or "Reverse charge applies" (for B2B supplies to EU businesses). If UK VAT is chargeable, show the VAT amount.

For further guidance on VAT compliance for your law firm, see our services page for a full overview of our legal-sector accounting support.

Worked Examples for Solicitors

A UK law firm provides corporate advice to a Canadian company. The advice does not relate to any specific land. The client is a business (B2B). The place of supply is Canada (where the client belongs). No UK VAT is charged. The firm holds the client's Canadian business number as evidence.

Example 2: B2C Overseas Client (UK Probate)

A UK solicitor handles the probate of a UK estate for a beneficiary who lives in Australia. The beneficiary is a private individual (B2C). The service relates to UK assets but is not a service "relating to land" in the narrow VAT sense (it relates to the administration of an estate). The place of supply is the UK (where the supplier belongs). The firm charges 20% UK VAT.

Example 3: B2B Overseas Client (UK Conveyancing)

A UK law firm handles the sale of a UK commercial property for a Singapore company. The land is in the UK. The place of supply is the UK, regardless of the client being B2B. The firm charges 20% UK VAT.

Example 4: B2C Overseas Client (Foreign Will)

A UK solicitor drafts a will for a UK resident who is temporarily living in Dubai. The client is a private individual (B2C). The service does not relate to land. The place of supply is the UK. The firm charges 20% UK VAT.

Common Pitfalls for Law Firms

Several errors recur in practice. Avoid these:

  • Assuming all overseas clients are outside VAT: B2C clients always attract UK VAT unless the service relates to land outside the UK.
  • Failing to obtain B2B evidence: HMRC can challenge a no-VAT treatment if you cannot prove the client is a business.
  • Misapplying the land exception: Not all services that touch land are "services relating to land" for VAT purposes. HMRC's guidance is narrow. If in doubt, seek specialist advice.
  • Ignoring post-Brexit changes: Since 1 January 2021, supplies of services to EU businesses are treated the same as supplies to non-EU businesses. The reverse charge still applies, but you must check the client's VAT number validity.
  • Forgetting to account for VAT on disbursements: If you incur costs on behalf of an overseas client (e.g., search fees, SDLT), the VAT treatment of those costs may differ from your fee. Disbursements properly defined are outside the scope of VAT, but recharged expenses may be part of your supply.

Interaction with the SRA Accounts Rules

If you hold client money for an overseas client, the SRA Accounts Rules still apply. Client money must be held in a client account, and you must comply with the five-weekly reconciliation rule. VAT treatment of your fees does not change your obligations under the rules.

For more on SRA compliance, see our SRA Accounts Rules Essentials guide.

When to Seek Specialist Advice

The place of supply rules for legal services are not always straightforward. If your firm regularly acts for overseas clients, or if you are unsure about a specific engagement, consult a VAT specialist who understands the legal sector. Getting it wrong can lead to HMRC penalties and interest, as well as reputational damage with clients.

Our team at Accounts for Lawyers provides VAT compliance support for law firms. We can review your overseas client procedures and help you implement robust systems. Contact us via our contact page for a confidential discussion.

For further reading, see our guides on COFA fundamentals and COFA compliance support.