Under Legal Services Commission ‘contracting’ arrangements, solicitors undertaking criminal and civil legal aid work receive a standard monthly payment (SMP) based on the anticipated level of work over the forthcoming year. As each case is completed it is ‘billed’ and the fee allocated against either payments already received or against future payments depending on whether the level of work already exceeds the value of SMPs received or visa versa. SMPs are routinely adjusted throughout the year to take account of any disparity in the level of work undertaken. They can therefore relate to cases at various stages of progress, for example those that are
The normal tax point rules apply in these circumstances.
Consequently there is a basic tax point for each case on
completion. This means that the VAT treatment of the SMP is
dictated by the progress of the work to which it relates.
So, to the extent that an SMP relates to a case that has
been completed (and for which a basic tax point has therefore
already occurred) the payment itself does not create a tax point.
On the other hand, if any part of the SMP is to be offset against
ongoing cases, or work that has not yet commenced, it represents a
pre-payment for those supplies and so creates a tax point in the
normal way.
The Institute for Legal Cashiers and Administrators (with input
from HMRC) has drawn up VAT accounting guidance for solicitors who
receive SMPs for legal aid work. This is published as a practice
note by the Law Society and is available on their website at
http://www.lawsociety.org.uk/productsandservices/practicenotes/vatonlegalaid/857.article
