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Why claimants pay 25% of any compensation settlement towards their legal costs

By Ian Morris | Updated January 16th, 2024

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Prior to the 31st March 2013, claimants pursuing claims for personal injury compensation on a no win no fee basis retained 100% of any settlement awarded to them with no deductions, and paid nothing if they lost their claim.

At that time, the system obliged 3rd party insurers to fully cover their legal costs and insurance costs as well as pay them compensation for their injuries and losses. From 1st April 2013, the law changed and successful claimants were obliged to help towards the cost of their claim by contributing up to 25% of their total compensation settlement and as Solicitors could no longer recover the cost of the ATE insurance premium in a claim, the claimant must also repay the cost of any such policy should they win.

The current no win no fee claims system still guarantees that claimants pay no costs whatsoever should their claim for compensation fail (including for any ATE premium cover put in place).

100% no win no fee removed by The Laspo Act

Sadly (in our view and that of the claimant personal injury sector) the Government bowed to pressure from the Insurance sector and introduced the LASPO Act 2012 (often referred to as the Jackson Reforms) effective from 1st April 2013. This changed the way No Win No Fee claims worked and who paid what when claims were won.

No Win No Fee legal services remained available to claimants, meaning that they could still pursue a claim without having the worry that they would be forced to pay expensive legal fees if they lost. However, the outcome if a claimant succeeded and won their claim for personal injury compensation was very different. The main result of these changes from a claimant perspective was that when their claim for compensation succeeded, they could no longer oblige a 3rd party to cover their legal costs in full.

To compound the problem, personal injury compensation solicitors were forced to work on a fixed fees basis and submit claims via the Portal system. This saw the fees they received from losing insurers for their legal work undertaken in succeeding with a claim reduced by more than half their previous sum, whilst their work and cost burden remained the same. As a result, the only way to cover the loss created by the new law was to oblige claimants to pay towards the legal costs when they won.

Insurers claimed that the cost burden they faced when losing a claim was too great and that solicitors were greedy, charging excessive costs and benefiting from encouraging claims and maximising claim settlements. As a result No Win No Fee solicitors were also banned from charging losing 3rd parties a success fee and the Government wholeheartedly agreed with the Insurance sector view that successful claimants should contribute to their legal fees.

25% now deducted from compensation

The Government decided that when a claimant succeeded with their claim and was awarded a compensation settlement, they would have to contribute a maximum of 25% of any settlement awarded to them which would be deducted by their Solicitor and used towards their costs incurred for running the claim. Further, successful claimants could no longer claim the cost of the insurance premium (ATE cover) that they had taken out from the defendant insurer and would now be obliged to pay that cost from their settlement in addition to the 25% deduction from their settlement award. It should be noted however, that the specialist partner Solicitor firms who pursue the claims Direct2Compensation claimants, work hard to minimise the deductions from claims.

Why did they do it?

The Government took the view that by changing the law relating to No Win No Fee claims for compensation and obliging a deduction from any successful claim, that they would achieve one of the insurance industries key goals – to reduce costs faced by the insurance companies, who form the vast majority of defendants in personal injury claims. For years, the insurance sector via their public mouthpiece, the ABI (Association of British Insurers) whose members had to pay the injury compensation settlements, special damages claims and legal costs when they lost a claim, had decried the ‘unfair’ burden placed upon them by what they labelled extortionate costs caused by the compensation culture sweeping the UK. Of course, the reality was that there never really was a compensation culture, it was just people exercising a legal right to pursue a claim for compensation when they were injured because of the negligence or actions of someone else.

It is interesting to note also, that during this same period when insurance companies decried their cost burden and tried to place all claimants in the ‘trying it on’ box, that their profit margins continued to rise as did the premiums that they charged to motorists, businesses and organisations. In a bid to further increase their profits, they convinced Government to agree that successful personal injury compensation claimants should pay towards the cost of the claims process. As a result, the Government amended the law so that successful No Win No Fee personal injury compensation claimants were obliged to contribute up to 25% of any compensation settlement towards the costs of the claims process as well as paying for any ATE insurance cover from their settlement. Government framed this change as being a move would benefit the wider consumer public as insurance premiums would decline, saving us all money. The Insurers promised that they would pass on the benefit of reduced costs to them by reducing insurance premiums for Motor, Public Liability, Employer Liability and many other insurance policies.

To summarise, the 25% deduction from compensation element of the LASPO Act 2012 and personal injury compensation claims after 1st April 2013, was brought in to reduce the costs faced by a losing insurer. It’s interesting to see that despite their promises and the lower cost burden that they now face, insurance premiums have not reduced in price. Indeed, premiums have risen way above inflation and profits have followed suit.

It’s still worth claiming

Regulated, compliant personal injury claims management companies such as Direct2Compensation and the expert personal injury compensation solicitors with whom we partner fought hard against the introduction of the new regime. Those of us who work in this sector could see that the changes were inherently unfair and in the favour of the huge insurance firms. Alas the Government pressed on. So whilst it isn’t fair, it is the system in which we are obliged to work. Losing 25% of a claim settlement and having to cover the cost of insuring the claim against failure (ATE), when the whole point of making a claim is because you’ve been disadvantaged by someone else’s negligence is far from ideal, but getting 75% of something is better than 100% of nothing. We fully believe that it is still worth making a claim and the new system just further enforces the point that it is vital to maximise any claim settlement.

ATE premium costs cannot be recovered so must be paid by successful claimants, but only if a claim is won. It is important to remember that ATE cover only needs to purchased if a claimant does not already have suitable cover. Suitable existing cover would be ‘legal expenses insurance’ – also known as BTE (before the event) insurance. It is important to discuss this with your Solicitor before asking them to provide ATE cover for you. Many people have BTE cover already and it can be attached to motor insurance policies, home & contents insurance cover, financial products such as credit cards or through union membership. If you would like to find out more about ATE & BTE insurance cover, please contact us or ask your Direct2Compensation specialist solicitor.

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.