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Why Claimants Pay 25% of Their Compensation Toward Legal Costs

By Ian Morris | Updated August 8th, 2024

196 questions have been answered on this subject - ask us your question

Quick Answer: Since April 1st, 2013, successful personal injury claimants are required to contribute up to 25% of their compensation settlement towards legal costs. This change was introduced by the Legal Aid, Sentencing and Punishment of Offenders Act 2012 (LASPO), which altered the way No Win No Fee claims operate in the UK.

Prior to March 31st, 2013, claimants pursuing personal injury compensation on a No Win No Fee basis retained 100% of any settlement awarded to them, with no deductions. If they lost their claim, they paid nothing. This system required third-party insurers to fully cover legal costs, insurance costs, and pay compensation for injuries and losses. However, the landscape of personal injury claims changed dramatically with the introduction of the LASPO Act 2012, often referred to as the Jackson Reforms.

The LASPO Act 2012: A Game-Changer

What Changed?

Claimants now contribute up to 25% of their compensation towards legal costs
Solicitors can no longer recover success fees from losing defendants
After The Event (ATE) insurance premiums are no longer recoverable from defendants

Why Were These Changes Implemented?

The government introduced these changes in response to pressure from the insurance sector, which argued that it was costing them too much. They claimed solicitors were charging excessive fees and warned of a perceived “compensation culture” in the UK.

Impact on Claimants

Financial Implications

Up to 25% deduction from compensation settlements
Responsibility for paying ATE insurance premiums if the claim is successful

Positive Aspects

No Win No Fee agreements still protect claimants from paying if they lose
Claimants still receive a significant portion of their compensation

The Insurance Industry’s Perspective

The insurance industry claimed the cost burden they faced when losing a claim was too great, and that solicitors were greedy, charging too much and benefiting from encouraging claims and maximising claim settlements.

Insurers argued that these changes would reduce costs faced by insurance companies. This in turn would lead to lower insurance premiums for consumers. It would also discourage fraudulent or exaggerated claims.

However, critics argue that insurance premiums have not significantly decreased, while insurer profits have continued to rise.

The Reality for Personal Injury Solicitors

The LASPO Act also introduced changes affecting solicitors, which made it necessary for them to recover some costs from successful claimants to remain viable. Fixed fees were introduced for many types of claims, and less fees were recoverable from losing insurers.

Ultimately, there would be more financial risk in taking on cases.

Is It Still Worth Making a Claim?

Despite these changes, pursuing a valid personal injury claim is still worthwhile:

You can still receive significant compensation for your injuries and losses
No Win No Fee agreements protect you from financial risk if you lose
Expert legal representation increases your chances of a fair settlement

How to Maximise Your Compensation

We fully believe it is still worth making a claim – the new system just enforces the point that it is vital to maximise any claim settlement. To ensure you receive the best possible outcome:

Choose a reputable, specialist personal injury solicitor
Provide all requested information promptly and accurately
Keep detailed records of all expenses related to your injury
Follow medical advice and attend all appointments
Be cautious about early settlement offers from insurers

While the 25% deduction from compensation settlements is not ideal for claimants, it’s important to remember that receiving 75% of a fair settlement is better than no compensation at all. The current system, despite its flaws, still provides access to justice for those injured through no fault of their own. Remember, while the 25% deduction can seem significant, having expert legal representation significantly increases your chances of receiving fair compensation for your injuries and losses.

Frequently Asked Questions

196 questions have been answered on this subject - ask us your question

Comments & Questions

Read on for questions and advice about claiming...

Is the 25% of a successful claim negotiable and, if so, at what point would it be agreed? Also, is ATE insurance compulsory and do you have to purchase it through your solicitor, or can it be bought independently?

The 25% fee can be negotiated as it is not set in stone, but in the majority of cases, a Solicitor won’t be able to move on that due to the costs restrictions put in place by law that can make working on personal injury claims on a No Win No Fee basis financially unviable for a law firm. However, before you sign any instructions for a Solicitor, you should ask about the possibility of a reduction. With our Solicitors, if they can do anything with the 25% deduction, they will.

As for ATE, it is not compulsory and can be purchased individually – although that is likely to be more expensive than getting it from your Solicitor. The majority of our cases no longer see any recommendation of ATE cover.

If I make an insurance claim the solicitor gets 25% of my claim amount? They shouldn’t be charging VAT as well as the 25%?

Your Solicitor will deduct UP TO 25% of your awarded settlement – although the amount that they can deduct is capped – either at a maximum of 25% of the total or up to the total of YOUR legal costs – essentially they can’t deduct more than their total costs.

VAT should be INCLUDED in any deducted amount and not added on top.

If I win a case on a No Win No Fee (25% deduction) agreement, do I have to pay any extra costs if the claim value is not enough to cover the Solicitors costs plus the Doctor appointments etc? Or does the 25% deduction cover everything, insurance inclusive?

You should not face losing any more than a maximum of 25% of your compensation settlement (including VAT) towards the costs of the claim. The only other contribution you can face is if your Solicitor has advised and put in place ATE insurance cover for your claim – in which case you cannot recover the costs of that premium. ATE costs usually are around £150-£300.

My daughter and her sons were involved in a motor accident 3years ago and claimed against the person that hit them. We have been informed that my grandson has been awarded £800 compensation but after the solicitors take out 25% plus ATE he is left with just 375 which seems wrong. Is there anything we can do about this ATE payment?

That would appear to be an excessive deduction from the compensation and should certainly be complained about to the Solicitor practice in question. If you were not advised as to the cost of the ATE cover before it was provided, there is every reason to have that fee waived and not deducted.

I got injury compensation my solicitor deducted the 25% as agreed and then also deducted money for cognitive Behaviour Therapy, Occupational therapy, medicine reviews that my solicitor had asked me to attend. I didn’t know anything about paying these bills until now. Is this right to deduct this money?

You need to check that the settlement provided by the defendant accounted for these costs. Sometimes, a defendant will settle rehab costs directly and in other circumstances, they may add the cost of the rehab therapies to settlement and the client must then meet the cost.

I wish to accept my offer on a whiplash claim, but my solicitor is telling me that out of my claim they will deduct ‘X’ amount for the physiotherapy that I received. Is this correct? I thought that I got 100% of my money?

Depending on the agreement you signed to instruct your Solicitor, the maximum you should contribute is up to 25% of any awarded settlement. However, in cases where the defendant has allowed a sum for physiotherapy that has been provided, the claimant will have to pay that back to the therapist who has already provided treatment. To clarify what you should face in terms of any cost, ask your Solicitor for a copy of your initial agreement and a written breakdown of their costs/your deductions.

Hi I’m in the process of a rtc claim that the third party has accepted liability, the accident took place right outside of mu home causing damage to front wall so solicitors have asked for quotes to repair damage. Do they then take 25% of the whole claim including the repair work or just the personal injury settlement amount?

We can only speak with certainty on the personal injury element of the claim you mention and the framework for that would be a maximum 25% deduction of any awarded settlement.

If the claim for the damage to the property is also being dealt with on a No Win No Fee basis, there could also be a deduction from that but we would have thought your Solicitor could recover their costs for the work on that element of the claim if pursued separately and that would mean retention of 100% of the total in that element of the claim.

As always, you should speak to whichever law firm is representing you.

Just wondering if my no win no fee claim deduction is right? My Solicitors say that it will be 25% plus vat, but I don’t no if this is right? My claim is estimated at 325k to £52k, but I have managed to get them down to 10% though.

The Solicitors agreement to reduce their deduction to 10% should be welcomed and will make a big difference to the amount of settlement you will receive. In usual circumstances, the deduction of 25% should include VAT and not have VAT added, but you should check that with your Solicitor and the agreement you signed with them at the outset of your claim.

Hello, is there anyway of claiming the 25% back of the solicitor?

In certain cases, some claimants may have a pre-existing insurance policy in place that would enable them to recover any deducted compensation, but in normal circumstances (due to Government changes to the laws regarding personal injury compensation claims effective 1st April 2013), claimants have no option other than to contribute to the costs of the legal process. Whilst this doesn’t seem particularly fair (and those of us on the claimant side of the personal injury sector fought against these changes), the fact is that Solicitors are now receiving far less in terms of fees for the work that they do – even with them having to deduct up to 25% from a claimant settlement.

Can you tell me is the rate of 25% on a no win fee the highest amount that can be charged as I have seen some company’s charging 40% Thankyou .

Firms may charge more, but it is a rarity for any firm to do so and claimants should not be asked to contribute such a high deduction from settlement. The standard legal requirement is a deduction of 25% (including VAT).

Hi, I’m happyish with the 25% payment, however the claim we have underway also stipulates “disbursements” will also be deducted but does not state what these will be. I understand they cover many things but it seems very vague, will they be considered in the final total or an additional amount we pay?

Hi Ian I have found the terms offered to me to take my case it says:

If we arrange a policy for you, the work carried out in arranging the same will be charged in accordance with our hourly rate and subject to the 25.00% (plus VAT) cap as set out in the CFA document. The work carried out by us before the policy starts will include explaining to you what the policy covers and does not cover, providing the necessary information to the insurer for the policy to be issued and checking the policy documentation received.

Are they allowed to charge me the vat on their 25% of the claim it mean they get all their costs paid, 25% + vat they will get more than me?

Our Solicitors charge 25% including VAT, but you will be charged what was listed in the relevant clause in whichever agreement you have signed.

It is certainly worth querying this with your solicitor.

This usually means that a Solicitor ‘may‘ have to deduct disbursement costs from a settlement but only if the legal costs that they are able to recover on success have yet to be forwarded. For example, if a client settlement is paid, but the legal costs are not forwarded, a Solicitor may take the costs that they have incurred from the settlement and then reimburse the claimant when their legal costs are also forwarded.

Essentially, at the end of the process, you should only contribute up to 25% of any awarded compensation.

I was told and signed in agreement with my solicitor that he would take on my personal injury claim for 25% plus £500 insurance, but now his ready to put forward a figure to the liable insurance company, he has asked me to sign excepting the condition of apart from what we have already agreed, his expenses of over £6000. The claim his putting forward is only£16000 of which he thinks we may get £12000, this will give him, roughly 75%, which to me is immoral. How do I stand.

We wonder if you may have misunderstood what your Solicitor is asking to to agree to and why. The initial agreement you signed with your Solicitor (Conditional Fee Agreement) instructed your Solicitor to act on the basis that you pay nothing if your claim failed, but allowed them to deduct up to 25% of any awarded compensation should you succeed (along with recovery of any ATE premium if you have agreed to that). That agreement should still stand – although you do of course need to question that BEFORE you sign any other document. The £6,000 figure is your Solicitors costs to date. Your Solicitor should only ask you to agree to those so that they can recover as much as possible from the defendant.

Hi, if I make a claim and win do the solicitors take 25% of the whole claim, ie loss of earnings and injury compensation?

The 25% deduction should include VAT and will be taken from the entire settlement – including special damages. However, if any part of the claim settlement relates to FUTURE loss of income or FUTURE medical costs, there should be no deduction from that element of the settlement.

Hi Ian,
I instructed a legal firm to fight a critical illness claim for me and the CFA I signed stated that the opponent will pay my legal fees if we win. The insurance firm finally agreed to a payout of the policy after some back & forth. It appears now my legal representative is withholding substantial amount of money by claiming it’s for their legal fees after deducting the agreed 50% success fee. This is clearly in breach of the CFA which says that I am entitled to recover the legal fees if we win from the insurance firm. The opponent has refused to cough up the legal fees but I will be significantly out of pocket as a result despite the CFA. I’ve complained and now the legal firm wants to negotiate. What % basis can I ask for to refund and/or what other form of redress can I get to conclude the matter? Many thanks

Without knowing the full contents of your CFA and the reasoning given for a deduction by your legal firm, it is of course, hard to advise properly. You should go in with the starting point being that you signed an agreement that afforded you a zero deduction service and that you fail to see why you should now have to sacrifice a substantial portion of your damages due to an issue that is beyond your control.

You may also wish to escalate your complaint to the regulatory authorities and the Legal Ombudsman in order that they can assist you and potentially secure you the full settlement.

My son has spoke to an accident helpline, they have sent an agreement which says they will take up to 35 percent of any compensation he receives, i think this seems a lot.

That is far too much! Our Solicitors would take no more than 25% of the compensation settlement and charge NOTHING if the claim fails. Give us a call to find out how we can help your Son make his claim for compensation.

I have just Accepted a £20,000 Compensation offer, but my Solicitor is saying I have to pay £4,000 in VAT, and the Solicitor said he is taking £8,000 instead of £10,000, Barrister £1,750 and the Doctor’s fee was £850, I have asked him for copies of Original offers but he just sent an ordinary email with the above details, sounds a bit dodgy to me.

Is this a personal injury matter? Why should you be paying VAT? You need to get to the bottom of this quickly – we would suggest complaining to the Solicitors first of all and potentially then escalating the complaint to the ombudsman.

Do you pay VAT on £20,000 Compensation?

Personal Injury Compensation settlements should not be subject to tax deductions.

Good morning today I received my Compensation check in full for my Recent car accident but my solicitors are asking for more than 25% of the value. Do I have to pay them more than the 25%?

You need to refer to the agreement you signed when you instructed your Solicitors to act for you. They should only deduct 25% from the settlement plus any ATE premium. The only other deduction could be if you have to provide some of the settlement to cover the costs of already provided rehab therapies.

Hi there i have had the help of a solicitor firm as I was involved in an accident long story short I received a cheque only yesterday for £650 and they took £3800 for fees which I had no idea about I was told they would take %25 of what ever they received I thought they claim their money off the 3rd party is there anything I can do about this?

Have you queried this with the Solicitor practice? It could be that they will be forwarding further funds to you in due course and that they have simply received part of the legal costs from the defendant (from which they can take their fees) and then the settlement balance will follow afterwards.

If this is not the case, you should immediately contact the Solicitors Regulatory Authority and legal ombudsman service and complain.

I’m currently going through a claim against the motor insurers bureau investigators and i’ve had an offer from them to settle. Now my Solicitors have said that if i take the offer, they’ll take their percentage and send the rest on to myself. When the claim first started 3.5yrs ago I was told their percentage was 25% of my overall claim. They are now saying they want 33% plus vat on top! Is this correct and allowed? Thank you

You need to refer to the agreement you signed when you initially instructed your Solicitor to act. They can only deduct more than 25% if their contract with you explicitly allows them to do so.