Barratt, Goff and Tomlinson and The Law Society as Intervenor v Revenue & Customs

Factual and Procedural Background

This appeal concerns a firm of solicitors, referred to as the Appellant, specialising in personal injury and clinical negligence claims, challenging a decision by the tax authorities (the Respondents) regarding the VAT treatment of fees paid for medical records and medico-legal reports. The tax authorities had held that such fees were part of a VAT-inclusive supply of legal services and not disbursements outside the scope of VAT. The Appellant contended that these fees constituted disbursements, which under VAT law should be outside the scope of VAT. The decision under appeal was a review decision dated 4 February 2009, upholding the original finding and related VAT assessments totaling £76,894 (except for £1,237). The Appellant appealed this decision to the First-tier Tribunal (Tax Chamber).

The dispute arose after a routine VAT control visit in June 2008, when the Appellant queried the VAT treatment of costs related to obtaining medical records and expert reports. The Respondents referred to their published guidance outlining eight conditions that must be met for payments to qualify as disbursements. The Respondents relied primarily on the conditions that the Appellant did not act purely as an agent and that the payments were integral to the legal services provided, thus failing the disbursement test.

The Law Society intervened in support of the Appellant. The Tribunal heard submissions from counsel for both parties and the intervenor, received an agreed statement of facts, documentary evidence, and oral evidence from a former partner of the Appellant firm. The Tribunal considered relevant European and domestic VAT legislation, case law, and the nature of the Appellant's business and procedures for obtaining and using medical records and reports in litigation.

Legal Issues Presented

1. Whether fees paid by solicitors for obtaining medical records and medico-legal reports on behalf of clients in personal injury and clinical negligence claims constitute disbursements outside the scope of VAT or form part of a VAT-inclusive supply of legal services.
2. Whether the solicitors act as agents for their clients when incurring such fees, satisfying the conditions for disbursements under VAT law.
3. The application and interpretation of relevant European VAT Directive provisions (notably Article 79(c) of Council Directive 2006/112/EC) and corresponding UK VAT legislation to the facts of this case.

Arguments of the Parties

Appellant's Arguments

• The fees for medical records and medico-legal reports are incurred on behalf of the client and should be treated as disbursements, thus outside the scope of VAT.
• The Appellant does not supply the reports and records to the client; reimbursement by the client does not form part of the consideration for the legal services supplied.
• The act of obtaining the documents is separate from the legal services, which consist primarily of analysing and advising on the reports.
• The client owns the medical records and reports, and the solicitor acts as agent in obtaining them.
• Analogies were drawn to cases where solicitors purchase travel tickets for clients, which are treated as disbursements.
• Relied on the European Court of Justice decision in De Danske Bilimporter v Skatteministeriet, arguing the solicitor acts in the client’s interest and the obtaining of documents is conceptually distinct from the legal service.

Respondents' Arguments

• The fees for medical records and reports form an integral part of the legal services supplied by the solicitor and are not disbursements.
• The solicitor obtains and uses the medical documents as necessary to provide legal services; the act of obtaining is not separate from the service.
• Attempting to separate the obtaining of documents from their use is artificial and without substance.
• Compared to the travel ticket analogy, the client does not use the medical reports directly; they are evidence used by the solicitor in litigation.
• All steps in litigation are taken in the client’s interest, but the solicitor must obtain and use evidence to provide the agreed service.
• Rejected the analogy to De Danske Bilimporter as inapposite.

Intervenor's Arguments (The Law Society)

• Supported the Appellant’s position that the fees for obtaining medical records and reports are disbursements and outside the scope of VAT.
• Provided written submissions emphasizing the distinction between the act of obtaining documents and the legal services of analysing and advising.

Table of Precedents Cited

Court's Reasoning and Analysis

The Tribunal began by reviewing the relevant European VAT Directive provisions, particularly Article 79(c) of Council Directive 2006/112/EC, which excludes from the taxable amount payments made by a taxable person in the name and on behalf of a customer, provided these are recorded in a suspense account. The Tribunal noted that the term "disbursement" is not defined in the legislation but is used in HMRC guidance as a shorthand for such payments.

The Tribunal analysed the eight conditions for disbursements set out by the Respondents, focusing on whether the Appellant acted as agent and whether the payments were separate from the legal services supplied.

Examining the facts, the Tribunal found that the Appellant obtained medical records and medico-legal reports on behalf of clients, who owned these documents. The Appellant’s role in obtaining and paying for these was as an agent acting in the client’s name and interest. The Appellant separately itemised these costs on client invoices and charged no profit on them. Payments were made from the Appellant’s office account, which functioned as a suspense account.

The Tribunal distinguished the present case from Rowe & Maw, where travel expenses were integral to the legal service, noting that here the act of obtaining the documents was separate from the legal advice and analysis provided.

The Tribunal gave significant weight to the European Court of Justice decision in De Danske Bilimporter, which established that payments made in the name and on behalf of a customer, recorded in a suspense account, and which are conceptually distinct from the supplier's own service, qualify as disbursements outside VAT.

Rejecting the Respondents’ argument that the solicitor’s obtaining and use of documents were inseparable parts of the same service, the Tribunal held that the solicitor acted as agent in obtaining the medical records and reports, which were supplied to the client. The use of those documents in providing legal services was a separate supply.

Accordingly, the Tribunal concluded that the payments for medical records and medico-legal reports were disbursements and thus outside the scope of VAT.

Holding and Implications

The Tribunal allowed the appeal, ruling that the fees paid by solicitors for medical records and medico-legal reports in personal injury and clinical negligence claims are disbursements outside the scope of VAT.

This decision means that such fees should not be treated as part of the solicitors’ own VAT-inclusive legal services but as payments made on behalf of clients acting as agents. The Tribunal directed that the Respondents pay the Appellant’s costs of the appeal.

No broader precedent beyond the direct effect on the parties was established by this decision.