VAT and third-party costs in a legal quote

A legal quote should distinguish professional fees, VAT and payments to third parties. HMRC guidance explains that VAT treatment of solicitors' disbursements depends on the actual transaction, not merely the label on an invoice. ^[1]

Ask for an itemised total Identify whether the fee is inclusive or exclusive of VAT and whether VAT applies to each additional item. Court fees, searches, expert charges, counsel's fees and translations may be treated differently and may be estimates until incurred.

Ask which costs the firm pays as your agent and which are expenses recharged as part of its service. Avoid assuming every item called a disbursement is outside VAT.

Separate estimates from committed expenditure Check when third parties will be instructed, whether approval is required and what cancellation charges might arise. If the quote includes an allowance, ask how any difference from the actual charge will be handled.

Compare the professional estimate with the pricing model. Retain supplier invoices or the explanation of charges where relevant. For a business client, recovery of input VAT is a separate tax question and should not be assumed simply because the legal bill is addressed to a company.

Read the quotation as several different kinds of payment Start by identifying the firm's own work, tax shown on that work and each amount expected to be paid to someone else. Ask for a description of the recipient and purpose of every external charge. A line headed expenses may conceal several unrelated items with different timing and treatment. Keep the total payable visible, but preserve the components beneath it. This lets you compare the quote with later invoices without treating every difference as an increase in the firm's professional fee.

For an illustrative quotation, a drafting fee, a translation estimate and an official filing charge should each be identifiable. Ask whether the translation figure includes any applicable tax and whether the filing figure is current or an allowance pending confirmation. The example does not establish the tax treatment of those particular services. It shows why an apparently complete total can still depend on assumptions about external work that has not yet been commissioned or a fee payable to a body outside the legal firm's control.

Ask what the word disbursement means on this bill HMRC's guidance distinguishes genuine disbursements for VAT purposes from expenses incurred as part of the solicitor's own supply. [1] An invoice label does not settle the distinction. Ask the firm to explain the treatment of an item if the presentation is unclear, including whether it is paying on your behalf or recovering a cost incurred in delivering its own service. The explanation should relate to the actual transaction rather than a general claim that all third-party payments are automatically outside VAT.

Do not change the firm's tax figures yourself simply because a supplier's receipt appears to show a different treatment. Ask how the underlying supply and any onward charge have been classified. Where the matter involves overseas parties or a business with complex tax arrangements, identify that early and obtain appropriate tax advice. A client may need a properly addressed invoice and supporting information for its accounts, but those administrative requirements are separate from deciding whether input tax is recoverable in its particular circumstances.

Decide when external expenditure can be committed Ask which third-party work is essential to the agreed legal task and which is optional or dependent on a later decision. Establish who authorises it and whether the firm will obtain a quote before instructing the supplier. An expert report or translation may create a commitment even if the wider legal matter settles soon afterwards. Discuss cancellation and variation terms where relevant, so the client understands the financial effect of changing direction after another professional has reserved time or begun work.

Keep estimates and actual charges distinguishable in the cost record. If an allowance is included, ask how an excess or unused amount will be handled. Where you pay a supplier directly, tell the firm so the same amount is not also collected through its account. If the firm pays first, request enough detail to reconcile the recharge. The aim is a complete picture of the matter's costs, including external commitments that may not appear in the professional-fee figure discussed at the first consultation.

Check the invoice against the agreed payment structure When billing arrives, match each external item with the corresponding authority, supplier or explanation. Verify whether earlier payments on account have been credited and whether an allowance has been replaced by an actual amount. Ask about differences using the line description and date. A clear enquiry might concern a duplicated filing fee or a translation cost that no longer matches the approved scope. Keeping the question specific helps the firm investigate the charge without reopening unrelated professional work that has already been explained.

For business records, retain the invoice addressed to the correct entity and pass tax questions to the person responsible for the accounts. Do not assume that a director paying personally changes the identity of the legal client or makes the tax recoverable. At the end of the matter, request clarification of any unused money or outstanding supplier charge. A fully reconciled legal bill should explain professional work, external spending, applicable tax and credits in a way that connects the final amount with the instructions and payments actually made.