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VAT, solicitors and search fee disbursements… are we any clearer?

 

Posted on 23 May 2018

The issue

In the case involving Brabners last year (which they lost) 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 on the basis that the searches enable the solicitor to advise and therefore, the fees for those searches could not be treated as (VAT free) disbursements for VAT purposes.

Previously Brabners (and most other firms) had indeed treated the search costs as disbursements and had not charged VAT to the client on the searches.

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.

 

Implications

Although it appears more of an issue for the those firms who do a significant amount of conveyancing, the concern is the VAT treatment could be extended to other disbursements. Also, HMRC could assess for under declared VAT going back 4 years.

It is possible that HMRC might look again, for example, at such issues as the accounting for VAT on fees charged by medical professionals for providing medical records and medico-legal reports for litigation purposes and the treatment of these as disbursements. This was the case of Barratt Goff & Tomlinson where HMRC issued assessments charging VAT on the basis that the fees were consideration for supplies of legal services but the Tribunal ruled they were disbursements.

 

Actions

The Law Society is in the process of reviewing its guidance on VAT on disbursements following the Brabners decision and are engaging with HMRC on the inconsistencies arising from the decision. However, it would be prudent for solicitors to review their respective arrangements and consider any actions which may be required. At this stage the Law Society are hoping to resolve this with HMRC without recourse to an appeal.

 

If you would like any further advice on disbursements and the Brabners case specifically, or any other VAT related topics, please feel free to get in touch with one our VAT experts.

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