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LSC Payment of VAT on Disbursements

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Following challenges by the Law Society, the Legal Services Commission has changed how it determines which rate of VAT to pay to legal aid firms on disbursements.

Following challenges by the Law Society, the Legal Services Commission has changed how it determines which rate of VAT to pay to legal aid firms on disbursements.

Since the change in the VAT rate, the LSC has been paying VAT on disbursements at a rate triggered by the date the case concluded, i.e. cases that concluded pre-December 2008 attracted a rate of 17.5% and cases that concluded after that were paid at 15%.

This was leaving providers out of pocket and with a shortfall as if they had paid a disbursement with VAT at 17.5% but the case which it related to concluded on or after 1 December 2008, the LSC would only pay 15% VAT.  The reasoning behind this was that providers would be able to claim back the difference in their tax returns. However, many legal aid firms operate within tight margins meaning their cash flow would be seriously affected by this.

The LSC's new position is that they will reimburse VAT on disbursements at the rate originally paid by a firm.

The Law Society is to issue a practice note on how to handle VAT disbursements.

If you require any further information regarding VAT on disbursements, please do not hesitate to contact a member of the Costs and Litigation Funding Department.

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