The First Tier Tribunal has now released its long-awaited judgement in an appeal taken by the personal injury and clinical negligence solicitors, Barratt, Goff and Tomlinson (BGT) and supported by The Law Society.

BGT submitted that, in order to pursue a client’s claim for personal injury, it is a legal requirement that a medico-legal report be prepared by an expert medical witness. In order for the expert witness to prepare the report BGT obtains its client’s medical records, for which BGT generally pays a fee. As the medical records and report remain the property of the client, BGT argued that it simply obtains the records and report for and on behalf of the client. The fact that BGT reads the report once it has been obtained should be irrelevant in determining whether the fee can be treated as a disbursement for VAT purposes.

HMRC took the view that the solicitors required the records and report in order to deliver their supplies of legal services to the client and, as such, the cost could not be treated as a disbursement.

The Judge agreed with BGT that it acquires the records and report on behalf of its client. As such, the costs could be treated as a disbursement for VAT purposes. 

As the fee paid for obtaining records is outside the scope of VAT, there is a real benefit for firms to treat this cost as a disbursement. The same benefit also accrues if the medical expert is not VAT registered. However, if the medical reports are provided by a VAT-registered expert then they are subject to VAT and there is generally no benefit to the cost being treated as a disbursement.