An ‘invoice’ can be constituted by almost any sort of document that presents an obligation for one party to pay another, however in Australia a ‘tax invoice’ confers that certain information will be included with important implications for record-keeping and the ability to claim input tax credits for the Goods and Services Tax. For law practices, not only must they contend with the requirements of the GST Act but also professional regulation dictating specific requirements and compliance obligations made when invoicing clients.
Invoices v Tax Invoices
An invoice identifies an obligation to make a payment whereas a tax invoice extends that characteristic to satisfying the specific requirements of the GST Act.
GSTR 2013/1 states that a ‘Tax Invoice’ may only be considered an approved form if it contains the following information:
· The words ‘Tax Invoice’, or ‘GST Invoice’, or ‘Recipient Created Tax Invoice’
· The date and ABN of the supplier
· Identification of both the supplier and the recipient
· Details of what is supplied and the price of that item
· Where mixed supply, a clear indication of what is subject to GST and what is not
· The total GST payable
A supplier must provide a tax invoice within 28 days of providing a supply and the recipient must not take up an input tax credit until they receive the invoice.
No invoice is required for a supply of $75 or less
If a supplier becomes aware of an adjustment event (e.g. a tax invoice recipient negotiates a reduction) the supplier must issue an adjustment note within 28 days of becoming aware. The note needs to show:
· The word ‘adjustment’ in combination with either ‘note’, ‘credit note’ or ‘debit note’ and all of the same information required for a tax invoice
· Additionally, the reason for the adjustment must be briefly explained
· If the adjustment note is against a tax invoice of mixed supply, the note must clearly ascertain what items it adjusts and the tax status of same
An adjustment note should be issued where a tax invoice is reversed
There is no need to issue where a debt is legitimately written off as a bad debt
No need to issue if the adjustment is less or equal to $75
Legal Practice Costs and Billing
Law practices are subject to a range of rules and regulations with regard the provision of invoices to their clients, including those of the professional organisation they are licensed by and the Australian Taxation Office.
Each State and Territory regulates costs and billing requirements for their licensed practitioners, for example in QLD Division 6 of the Legal Profession Act 2007 Section 330 details the form of an invoice, how it is to be delivered to a lawyer’s client what is required to be on an invoice provided to a lawyer’s client and how it may be signed.
Section 330 of the Act reads, in part:
(1) A bill may be in the form of a lump sum bill or an itemised bill
(2) A bill must be signed on behalf of a law practice by an Australian legal practitioner or an employee of the law practice
(3) It is sufficient compliance with subsection (2) if a letter signed on behalf of a law practice by an Australian legal practitioner or an employee of the law practice is attached to, or enclosed with, the bill.
Transparency is a key objective of both the Uniform Law and various Legal Profession Acts in force in Australia. In NSW, VIC and soon WA (expected mid-2021) Section 169 of the Legal Profession Uniform Law set out various objectives of the Act, including that “clients of law practices are able to make informed choices about their legal options and the costs associated with pursuing those options” and that “practices must not charge more than fair and reasonable amounts”.
Sect 172 further clarifies costs must be “proportionately and reasonably incurred reflecting the level of skill, experience, specialisation and seniority of the lawyers concerned and the complexity, novelty or difficulty of the issues involved.”
Fair and Reasonable
“A law practice must not act in a way that unnecessarily results in increased legal cost payable by a client, and in particular must act reasonably to avoid unnecessary delay resulting in increased legal costs”. (S173 of the LPUL)
‘Fair and reasonable’ is held to mean costs that correctly reflect the skill, complexity, labour and responsibility, quality of work done, the retainer and instructions given, the urgency and time spend on the matter.
Disclosure and Cost Agreement
A practitioner must disclose the basis on which legal costs are calculated and an estimate of the total (if in excess of $750 ex disbs and GST). If that changes, they must disclose the change. They must advise their client that negotiation of both the costs and the billing method is possible, that a right to receive a bill exists including itemisation and that they may seek assistance from an assessing authority where dispute arises.
A practitioner must be satisfied their client has understood this. A cost agreement does not need to be signed if the conduct of a practitioner’s client makes it clear the agreement is accepted. Conditional cost agreements must be signed and typically allow for an uplift of fees on successful outcome, limited to 25% of the agreed fee. A conditional agreement cannot apply to Criminal or Family Law matters. In a litigious matter, a law practice issuing such an agreement must believe that a successful outcome is reasonably likely.
A law practice does have the right to seek security for costs, by way of funds to be provided and held in trust or possibly a caveat over an asset.
Contingency fees prohibited
While limited uplifts are available based on quoted legal fees, in most circumstances a practitioner is specifically barred from referencing their fees to an award recovered in a proceeding.
Form of Bills
Fees on a legal practitioner’s invoice may be listed as a lump sum or itemised (S186 of the LPUL), however a request for itemisation may still apply. Such a request must be made within 30 days and a law practice must provide same within 21 day. If the recipient party is only paying for part of the bill, they only need receive partial itemisation.
Clients may (reasonably) request a progress report indicated the amount of costs incurred to date and practitioners may interim-bill matters.
Practitioners may commence recovery proceedings 30 days after provision of an invoice unless the invoice is under dispute. Interest may be applied to bills on a simple-interest basis provided the rate does not exceed 2% above the published Reserve Bank of Australia cash-rate target (currently 0.10%) – therefore 2.1% interest.
Cost assessors review legal costs both on the basis of the original intention (the agreements between a practitioner and their client) and also circumstances that may make other parties liable for costs such as the incurring of fees based on another’s litigation. Compliance with the rules, disclosure, the skill and effort incurred and orders of a court are all factors in the assessment. They have the power to refer practitioners to disciplinary authorities under certain circumstances and to determine who will pay for the fees of undertaking the assessment. If a law practice fails to disclose the basis of costs or the practice’s fees are reduced on assessment by 15% or more, then is it likely the practice will pay for the costs of assessment.