June 5th, 2018

The Law Society publishes guidance to Conveyancers on charging VAT on Electronic Searches

The Law Society announced that the tax authorities have started to contact law firms directly asking for details on their VAT treatment of electronic searches. In order to help clarify the position for firms in terms of how VAT on electronic property searches should be dealt with, the Law Society recently attended a meeting with HM Revenue & Customs to discuss the 'inconsistencies' in the Brabners decision last year when the firm had its appeal against a retrospective VAT bill for electronic searches dismissed.

The issue at the crux of the Brabners v The Commissioners for HMRC was whether electronic searches should be classed as a disbursement or not when charging clients in conveyancing matters. In summary; the agency conducting the electronic searches had not added VAT to the invoices issued to Brabners who in turn, recharged the search fees to its clients as a disbursement, outside the scope of VAT. HMRC disagreed with the VAT treatment and issued an assessment for underdeclared VAT for the maximum four-year period, totalling £67,776.

The first-tier tribunal ruled that conveyancing solicitors were 'not simply a conduit or postbox for search results'. 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. Brabners had its appeal against the VAT bill for electronic searches dismissed.

The Law Society recently published details of its discussion with the HMRC, stating: 'HMRC has confirmed that they do not intend to change the approach set out in their published guidance as to whether a property search fee should be treated as a disbursement for VAT purposes; if the search is passed on to the client without comment or analysis, HMRC says the fee may be treated as a disbursement. However, if the firm uses the search itself, for example in providing advice, or a report, HMRC's view is that the fee will form part of the charges for its services and will be subject to VAT.'

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'In the absence of a binding decision of an Upper Court, firms may wish to follow HMRC's guidance when deciding whether to charge VAT on fees for property related searches going forward'. This would include all searches which have historically not carried VAT such as the LLC1.


The Law Society Guidance Notes

http://www.lawsociety.org.uk/news/stories/vat-on-electronic-property-searches--interim-guidance-to-firms/

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