solicitors charging 23% on work done in 2011

BizAngel

Beware of unscrupulous solicitors charging 23% VAT on work done in 2011.

This is only an issue for the next couple of months but people should be aware of it... Last week a client of mine was agreeing the bill with a solicitor for probate work done in 2011. The fee was agreed at €X plus VAT. The solicitor stated that she would have to charge the 23% rate of VAT and went into detail about the Cash Receipts basis of accounting as justification for same. I pointed out that, as per Revenue guidance, the correct rate of VAT was 21% as the work was completed in 2011. When my client raised this with the solicitor the solicitor admitted that the correct rate was 21% but the fee agreed was the gross amount (i.e. at the 23% rate) despite the fact that only 21% would be remitted to the Collector General. Therefore, this legal firm (and how many more?) are increasing their fees by 2% on work completed in 2011 but not billed until 2012under the pretence of being obliged to do so due to the VAT rate increase. BEWARE!!!

CamperMan

I would have thought that even though the work was carried out in 2011, and the invoice was sent out in 2012, then they would have to charge the new VAT rate

BizAngel

CamperMan wrote: »

I would have thought that even though the work was carried out in 2011, and the invoice was sent out in 2012, then they would have to charge the new VAT rate

That is exactly what the solicitor in this case was hoping!! See extract from Revenue guidance below......
""What is the situation for businesses on the cash basis of accounting for VAT?
Traders who account for VAT on the cash basis are not liable for VAT on their supplies until they receive payment. However, where they make supplies before 1 January 2012 but receive payment on or after 1 January they should account for VAT on those supplies at the 21% rate. Such traders must account for VAT at 23% on goods and services supplied on or after 1 January""

Pablo Sanchez

Yeah mistakes can happen for sure, i doubt they are doing this on purpose.

Now if an accountancy firm makes the same error......

irishgirl19

I work in telecommunications and all bills issued to customers after the 1st Jan have to be charged at 23% VAT even though its billing for the service before Jan,as directed by the revenue.

MagicMarker

irishgirl19 wrote: »

I work in telecommunications and all bills issued to customers after the 1st Jan have to be charged at 23% VAT even though its billing for the service before Jan,as directed by the revenue.

That's a little more difficult I think, you're billed in advance for your line rental and BB etc so your January bill has the charges for January's LR and BB but obviously it has December's calls.

I'm not sure if it's even possible to have 2 vat rates on the one bill.

irishgirl19

MagicMarker wrote: »

That's a little more difficult I think, you're billed in advance for your line rental and BB etc so your January bill has the charges for January's LR and BB but obviously it has December's calls.

I'm not sure if it's even possible to have 2 vat rates on the one bill.

But in arrears for calls.so all calls in nov,dec charged @ 23%

MagicMarker

irishgirl19 wrote: »

But in arrears for calls.so all calls in nov,dec charged @ 23%

November only if you're billed bi-monthly, in which case you'd be charged for January and February's line rental/broadband, and like I said I don't think you can have 2 VAT rates on the same bill.

irishgirl19

MagicMarker wrote: »

November only if you're billed bi-monthly, in which case you'd be charged for January and February's line rental/broadband, and like I said I don't think you can have 2 VAT rates on the same bill.

Nevertheless it brings in alot of calls querying it.

maxer68

BizAngel wrote: »

Beware of unscrupulous solicitors charging 23% VAT on work done in 2011.

This is only an issue for the next couple of months but people should be aware of it... Last week a client of mine was agreeing the bill with a solicitor for probate work done in 2011. The fee was agreed at €X plus VAT. The solicitor stated that she would have to charge the 23% rate of VAT and went into detail about the Cash Receipts basis of accounting as justification for same. I pointed out that, as per Revenue guidance, the correct rate of VAT was 21% as the work was completed in 2011. When my client raised this with the solicitor the solicitor admitted that the correct rate was 21% but the fee agreed was the gross amount (i.e. at the 23% rate) despite the fact that only 21% would be remitted to the Collector General. Therefore, this legal firm (and how many more?) are increasing their fees by 2% on work completed in 2011 but not billed until 2012under the pretence of being obliged to do so due to the VAT rate increase. BEWARE!!!

surely if the fee agreed included vat, the solicitor is losing out if he charges 23% vat and also I assume the fee was agreed in 2011 - so where's the rip-off. Don't tell me the fee was agreed AFTER the work was done?? A solicitor must give you an estimate of costs when the work is agreed and before it is undertaken

example - fee agreed = €1000 including vat

at 21% the net fee for the solicitor is 826.44
at 23% the net fee for the solicitor is 813.00

Kristopherus

My understanding of the cash basis VAT accounting system is that the VAT rate applying at the time of receipt of payment is the rate that applies. This does not seem to be the case now .Wonder when they changed the arrangements?

nompere

Kristopherus wrote: »

My understanding of the cash basis VAT accounting system is that the VAT rate applying at the time of receipt of payment is the rate that applies. This does not seem to be the case now .Wonder when they changed the arrangements?

It's your understanding that is at fault.

From www.Revenue.ie

6. VAT liability on moneys received

A trader who has opted to account on the moneys received basis is liable for VAT at the rate applicable at the time the goods or services are supplied and not at the rate applicable when payment is received, if a change in rate has taken place in the interim.

http://www.revenue.ie/en/tax/vat/leaflets/moneys-received-basis-accounting.html

dudara

Well, surely this is an accrual based accounting, not cash based?

Revenue has directed that invoices issued on, or after, Jan 1st, should be issued at the rate of 23%, regardless of when the services were supplied.

And I fail to see why you are calling the solicitor "unscrupulous"? They are not pocketing the extra 2% in VAT rate increase. That money is a liability on their books to the government - they don't get to keep it for themselves.

Anyway, moved to the Taxation forum, as it's better suited there.