Insurance law firms undertaking defence work for clients under a delegated-authority agreement could face higher VAT bills and potential disputes with clients, accountants have warned.

Insurers typically contract out claims-handling work to law firms, especially motoring defence work, under what is known as defendant delegated authority.

Accountancy firm RSM say that following a review of the VAT applicable to these contracts, HMRC has now updated its guidance and clarified that it will regard pre-litigation work as exempt. Post-litigation work, on the other hand, will now be taxable.

As VAT rules stand, insurers cannot recover the VAT appli...

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