On an assessment of costs between the parties, the receiving party must ensure that no claim for VAT is made in the bill if that party is able to recover it as input tax. Disputes as to the recoverability of VAT in bills between the parties are usually resolved by the making of a certificate as to the VAT position by the legal representatives or auditors of the party receiving costs or by H M Revenue & Customs.

Cases in which the receiving party cannot recover VAT on the costs payable by the paying party include the following:

(i) the receiving party is a VAT registered taxable person and the supply of legal services was obtained for the purpose of his business;
(ii) the receiving party is domiciled outside the European Union;
(iii) the receiving party is domiciled outside the UK but is domiciled in the European Union and received the supply of legal services for the purposes of his business; or
(iv) the receiving party is a legal representative representing himself (the “selfsupply” exception to VAT).

The Part 44 Practice Direction (para 2) sets out some special provisions relating to VAT.