Direction of supplies: Payment of another party’s legal costs

Hi all, As the thread title suggests, I have a query on VAT payment by a third party on our bill of costs, under the below guidance. "If the solicitor’s client is a registered fully taxable person, and the supply of legal services is obtained for the purpose of the client’s business, the client will be entitled to an input tax credit in which case the indemnifying party need only pay the costs exclusive of VAT" I work for a firm of Solicitors and part of our service is to recover debts for our clients who are VAT registered. Our bill of costs is payable by the debtor/third party, whom we have recovered the debt from. As I understand it, they only need to pay the net aspect of our bill and not the VAT. That then poses the question of who pays the VAT to clear the bill on our system? Do we send the bill to our client to pay the VAT element so they can claim it back and then we ask the debtor to purely pay the fees aspect? Thanks in advance for any help.

Hi. You are referring to the guidance below: VAT Supply and Consideration  . Under these cicumstances where the client is a fully taxable the client will be allowed to recover the VAT charged to them. Hence you will bill the third party net of VAT and bill the client the VAT element which they should then be allowed to recclaim on their VAT return  . Thank you .