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VAT on disbursements: Update

12 Jan 2018   |   Sophie Roberts   |   0 Comments

Last year we sent out a newsletter about the lawfirm that is facing a £68,000 VAT bill for providing conveyancing searches to their clients after a tribunal ruled that the cost of these searches should not have been treated as disbursements.

This week a statement on the decision which questioned whether search fees should be treated as disbursements for VAT purposes has been issued by the Law Society.

“It states that members will be aware of the First-tier Tax Tribunal decision in Brabners LPP v HMRC; here, the Tribunal concluded that the act of obtaining electronic property searches from a search agent formed part of the overall service provided by a firm to its client. This was found on the basis that the searches enable the solicitor to advise and therefore, the fees for those searches could not be treated as disbursements for VAT purposes

In its judgment, the Tribunal also went further than HMRC’s own guidance in concluding that electronic searches could not be treated as disbursements even where the solicitor had not made use of search report to advise the client.

Moving Forward….

While the decision of the First-tier Tribunal is not binding on any other tribunal or court, the decision has resulted in uncertainty for members and search providers who are seeking clarity on the correct VAT treatment of electronic property searches.

In order to address this in a meaningful way which takes into account the views of our members, the Society is establishing a working group to assist in providing updated guidance to the profession in respect of the VAT treatment of disbursements. In the meantime, in the absence of any binding adjudicated decision on the subject, we suggest that firms follow HMRC’s published guidance on the treatment of searches

If any firm has been contacted by HMRC regarding historic VAT searches, the Law Society would be interested to hear from you, in particular if the firm’s practice was to pass on the search to the client, so satisfying the second of the eight conditions set out in HMRC’s VAT Notice 700 for treating a payment to a third party as a disbursement.

Christina Blacklaws. The Law Society vice president stated:

“The decision in the Brabners’ case was understandably met with concern by members of the profession.

“The non-binding nature of the decision, as well as the unique complexities of this case, have presented challenges which are taking some time to work through.

“We understand the need for certainty from members and our ongoing work is focused on ensuring we find a solution which works for all parties.”

Now there is still uncertainty so just remember to take a look at your internal processes and follow HMRC’s published guidance on the treatment of searches. 

Don’t forget, if you are including one of our Regulated/Personal Local Authority Searches in your bundles, then you are already covered from a VAT perspective.

We will keep you updated with any further information published.

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