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Court of Appeal Decision on MRO VAT issue

April, 4, 2019

A decision made in British Airways v Prosser – VAT will now be payable on medical reports where the solicitor engages an MRO.

The issue

Where a solicitor engages a medical reporting organisation (MRO) to provide medical reports and records, can the MRO (and therefore the claimant’s solicitor) charge VAT, not only on the MRO administration fees but also the charges for reports and records?

The facts of the case

The claimant/respondent had been injured at work on 26 May 2014 and sued his employer. His solicitors commissioned an MRO (that they owned) to secure medical reports and records. Between December 2014 and June 2016, the MRO invoiced the solicitors a total of £1,278, £213 of which was VAT. Two of the invoices expressly recorded that £30 was being charged by way of “Admin Fee”, but it was common ground that an administration fee (in one case of £165, in the others of £30) accounted for part of each of the seven invoices. The balance of the invoices were the sums charged by the doctor, medical centre and hospitals that had provided the reports and records.  The invoices claimed VAT on the total of the administration and medical fees.

Following settlement of the claim, the defendant denied liability for much of the VAT included in the invoices from the MRO. The claimant issued costs-only proceedings. The defendant’s position was that the MRO should only have charged VAT on the element of each invoice that represented its administration fee. As to the remainder, it was argued that the doctors, medical centre and hospitals would not have levied VAT (because the providers were not VAT-registered or their supplies were exempt), and the MRO should not have done so either. In the circumstances, the defendant should not be required to meet the excess of £189.

The District Judge rejected the defendant’s argument.  The defendant’s appeal was leap-frogged to the Court of Appeal.

The court’s decision

The Court of Appeal rejected the appeal.

In a typical case in which a solicitor commissioned an MRO to obtain a medical report/records the solicitor would neither be acting as the client’s agent in contractual terms nor incurring the expenditure “in the name of and on behalf of” the client for the purpose of article 79(c) of the Principal VAT Directive. The report/records would be “supplied to the solicitor … to enable him effectively to perform the service supplied to his client”.

This was to be contrasted with the decision in Barratt (2011) as that did not involve an MRO: Barratt’s solicitors obtained medical reports and records themselves, without using an MRO.

The court also found that charging VAT in this way was both reasonable and proportionate.

The implications for defendants

Many MROs had previously charged VAT only on their own administration fees, and not on the medical fee/records element.

There may still be some cases where VAT is not payable on the whole of an MRO invoice, but on the basis of the Court of Appeal’s decision, these cases will be rare.

Although the increases are likely to be small in any particular case, defendants now face the prospect of paying additional costs “across the board” as MROs change their process to claim VAT on the whole invoice, and as those claimant solicitors who would previously have conceded part of the VAT element in costs negotiations will now decline to do so.

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