HMRC has confirmed the decision to withdraw the concessionary VAT treatment of postal property searches from 1 December 2020, to eliminate unwarranted confusion and standardise the process going forward, ensuring the correct treatment of payments as disbursements.
This update only applies to solicitors and conveyancers who obtain property searches by post.
At present, the concessionary VAT treatment of such searches allows solicitors and conveyancers to treat postal search fees to their clients as ‘disbursements’, and therefore the fees are not liable for VAT.
Why has this changed?
HMRC engaged with key professional bodies to better understand their views on the postal concession and agreed that changing industry practices have made postal searches somewhat obsolete in this day and age.
As to ensure the “correct and consistent” VAT treatment of property searches, HMRC’s announcement is intended to abolish inconsistencies around the VAT treatment of costs associated with property searches.
The concession will be formerly withdrawn on 1 December 2020, after which HMRC will then publish further guidance. We will continue to publish updates as they’re announced, but to ensure you’re up to date, sign up to our mailing list by clicking here.
Existing disbursements rules
It is still possible for certain supplies to be treated as disbursements (and therefore not subject to VAT). Payments to a third party may still be treated as a disbursement for VAT purposes if all the following conditions are satisfied:
- You acted as the agent of your client when you paid the third party;
- Your client actually received and used the goods or services provided by the third party (this condition usually prevents the agent’s own travelling and subsistence expenses, telephone bills, postage, and other costs being treated as disbursements for VAT purposes);
- Your client was responsible for paying the third party (examples include estate duty and stamp duty payable by your client on a contract to be made by the client);
- Your client authorised you to make the payment on their behalf;
- Your client knew that the goods or services you paid for would be provided by a third party;
- Your outlay will be separately itemised when you invoice your client; you recover only the exact amount which you paid to the third party; and
- The goods or services, which you paid for, are clearly additional to the supplies which you make to your client on your own account.
If you seek further clarification or any particular advice surrounding the VAT treatment of disbursements, please get in touch and we will be happy to assist.