With effect from 1 May 2007, expert medical witness reports supplied directly by the expert concerned have become liable to VAT at the standard rate, where that expert is registered for VAT. This has given rise to various issues for personal injury solicitors, who are faced with treating the onward supply of such reports, and indeed medical records, to their clients correctly for VAT purposes. We have now clarified with HM Revenue & Customs how such onward supplies should in fact be treated, and in our view this should be of interest to all personal injury lawyers.
The issue is whether, and when, such onward supplies are eligible for treatment as disbursements. This is important because the client will be unable to recover any VAT charged to them. Assuming the solicitor is VAT registered, VAT would have to be so charged if the supply is not a disbursement.
In order to be eligible for treatment as a disbursement, a supply must meet all of the following 8 conditions:
1. The lawyer must act as agent for the client in paying the expert.
2. The client receives and uses the expert's report in dealing with their case.
3. The client is responsible for paying the expert.
4. The client authorises the lawyer to pay the expert on their behalf.
5. The client knows that the report will be provided by an expert and not by the lawyer.
6. The expert's fees are separately itemised by the lawyer as a disbursement when invoicing the client.
7. Only the precise amount of the expert's fees is recovered from the client by the lawyer.
8. The expert's services are clearly additional to those supplied by the lawyer to the client.
Precisely the same conditions apply to the treatment of medical records accessed by way of Subject Access Request, where the cost of obtaining the records is passed on to the client.
Of particular interest is the situation where, before passing on the report or records to the client, the solicitor reviews the paperwork, or both reviews it and makes recommendations based upon it. Does either of these actions render the report or records ineligible for treatment as a disbursement?
HMRC's considered response to this question is that if the solicitors "receive and review expert medical witness reports or medical records and make recommendations based on these documents for their client,..... a disbursement is not taking place."
Given that the solicitor would hardly be in a position to make recommendations if he or she had not reviewed the report or records, this makes the critical factor in deciding upon eligibility for treatment as a disbursement whether recommendations have been made to the client based upon the report or records. If not, disbursement treatment is potentially available if the 8 tests above are met. If so, the supply of the report or records cannot be a disbursement.
This will of course give rise to some highly philosophical arguments about what are and are not recommendations. The Oxford English Dictionary defines "recommend" as "advising a course of action", which may be of some help in this respect, and I guess in practice that sometimes a solicitor will make recommendations based upon a report or records and sometimes not, the former presumably being more likely if the records or report disclose some factor of the case not previously clear.
It is clear that the onward supply of report or records, accompanied by recommendations, by a solicitor (if not a disbursement) is VATable even if the supply by the expert, hospital or doctor to the solicitor is not itself VATable.
Hopefully the above is of assistance to personal injury solicitors in clarifying the nature of the supply they make when obtaining and forwarding expert witness reports or medical records to clients.
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