Almost every bill a firm sends and many payments it makes on a client's behalf carry a VAT consequence. As a solicitor, you need to know when to charge VAT, when it simply passes through to the client, and exactly which ledgers each amount lands on. Get this right and the firm's accounts reconcile cleanly with what it owes to or reclaims from HMRC; get it wrong and the figures — and the firm's tax position — fall apart.
This lesson builds that skill from the ground up, one situation at a time.
What this lesson covers:
- VAT Basics for a Law Firm — registration, the standard rate, and the difference between output and input VAT on the firm's HMRC account.
- Recording VAT on a Bill — the entries for issuing a bill of fees plus VAT and for receiving the client's payment.
- Disbursements: Agency vs Principal — the single distinction that decides the whole VAT treatment, and the conditions for agency.
- Recording Agency Disbursements — booking pass-through payments with and without client funds available.
- Recording Principal Disbursements — splitting out reclaimable input VAT and the later billing entries.
- Special Cases — court fees outside the scope of VAT, and counsel's fees under the HMRC concession.
- Bills, Transfers and Abatements — moving billed money between accounts and adjusting a bill that is later reduced.