Personal injury firms hit face new VAT threat

Changes by HM Revenue & Customs (HMRC) to the treatment of medical reports for VAT purposes could cause personal injury firms ‘significant’ extra expense, tax lawyers have warned.

The changes have prompted the Law Society to make written submissions in a forthcoming VAT tribunal case, Barratt Goff & Tomlinson (BGT) v The Commissioners for HMRC.

The Nottingham personal injury firm is challenging HMRC’s decision requiring it to account for VAT on medical reports obtained for personal injury or clinical negligence litigation. The reports, obtained by BGT for clients, were previously accepted by HMRC as disbursements and were not subject to VAT.

However, HMRC now argues that because BGT reads the medical reports, it has obtained them to provide a legal service and should therefore be charging VAT on them.

Gary Richards, chairman of the Law Society’s VAT and duties committee, said solicitors obtain medical reports as a service to clients and charge for them at cost. He said applying VAT will make reports more expensive, particularly if the tax is increased as expected.

Richards added that firms could have difficulty in recouping the VAT from clients, for example if a case has since been dropped. He said that, given the number of medical reports commissioned by some personal injury practices dealing with large volumes of cases, the cost to firms could be ­‘significant’.

The tribunal hearing has been listed for 1 December.