- High interest rates are causing VAT risks for solicitors holding client funds.
- HMRC does not allow netting off in partial exemption calculations.
- Interest received is considered part of the solicitor’s business activity.
- Solicitors risk restricted VAT recovery on overhead costs.
- HMRC is scrutinizing VAT returns and penalizing overclaims.
- Businesses with mixed income must monitor and adjust VAT claims.
- Partial Exemption calculations should be reviewed annually.
- High interest levels may exceed de minimis, affecting VAT recovery.
- VAT recovery must be fair and reasonable; special methods may be needed.
- Special methods provide certainty and protection but cannot be backdated.
- HMRC views interest income as a necessary business extension.
- Large practices may use standard method override or require a special method.
- Solicitors should address interest income proactively to avoid issues.
Source: menzies.co.uk
Note that this post was (partially) written with the help of AI. It is always useful to review the original source material, and where needed to obtain (local) advice from a specialist.
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