VAT and the Solicitors' Indemnity Insurance Rules

HM Customs and Excise has drawn to the Law Society's attention a problem that is occurring in relation to VAT returns and solicitors' claiming insurance premium tax as input tax on their VAT returns.

When the Solicitors' Indemnity Fund (SIF) provided the compulsory indemnity cover, the contribution was subject to value added tax (VAT), as the cover provided was not deemed to be the supply of insurance for VAT purposes and, therefore, it attracted standard rated VAT.

The shortfall contribution that the SIF continues to collect is still subject to VAT and this can correctly be claimed as input tax by VAT registered solicitors.

Qualifying insurance provided by authorised insurance companies is exempt of VAT, but it is subject to insurance premium tax.

Therefore, solicitors should make sure that no claim for input tax is made on VAT returns in respect of payments for qualifying insurance.

Any queries on the topic should be addressed to the Law Society's professional indemnity team, tel: 01527 504487.