Imagine the following scenario. You run a small business, and your turnover is low enough thatyou don't need to be VAT registered.You instructed your solicitor to raisea claim in your local Sheriff Court against a customer who refused to payone of yourinvoices, despite you havingdelivered the goods you contracted to provide.
The customer knows they have no defence, so they don't bother to defend the claim. Your solicitor is therefore able to obtain a decree (court order) from the court, without the need for any hearing. This decree entitles you to payment of the full sum of your invoice, plusa fixed amount in respect of your legal expenses, from your customer.
Are you entitled to recover VAT on top of the fixed amount awarded by the court for your legal expenses?
Clarity in Edinburgh at least...
As with many practical aspects of court procedure, and much to the annoyance of litigants, the answer appears to depend on which court you raised your action in.
Whilst the relevant regulations appear to clearly allow the recovery of an amount equal to the VAT which would be chargeable on solicitors' fees,for some reason some Sheriff Courts have simply been refusing to allow solicitors to add an amount for VAT to the expenses claimed when asking the court for a decree in undefended cases.
However, a recent decision of Sheriff Mackie at Edinburgh Sheriff Court makes it clear that a successful Pursuer or Claimant in an undefended court action at Edinburgh Sheriff Court can recover VAT on top of the fixed amount they receive in respect of legal expenses. Sheriff Mackie stated:
"VAT is a charge imposed by statute upon the cost of legal services supplied in the UK. It should therefore be recoverable, where appropriate, whether or not the action is defended."
If you have an undefended case in another Sheriff Court, then Sheriff Mackie's decision will not be binding. Even so, it would be worth asking your solicitor to draw it to the attention of the Sheriff and invite them to confirm that VAT can be added to the legal expenses granted.
If you would like to discuss this or are looking for advice on any aspect of court procedure or practice, please get in touch with a member of our Litigation team.
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