Councils set to charge VAT on searches next month after HMRC intervenes

Councils are set to charge VAT on searches after HMRC decides CON29s should be VAT applicable.

While some councils have said they intend to absorb the 20% charge, other authorities have said they intend to apply the charge additionally or even review prices entirely.

Today’s Conveyancer understands that some councils intend to introduce the charge from 1st February. The Chartered Institute of Public Finance & Accountanc (CIPFA) who were invited to give a formal response, say they will not appeal the decision.

According to minutes of the CIPFA VAT committee on 5th November: “HMRC’s view is that when a local authority provides refined data (CON 29(R) and CON 29(O)) in answer to enquiries made of it, the authority enters into a contractual relationship with the enquirer in the same way that a commercial property search company does.

“Regulation 8(1) of the Local Authority (England) (Charges for Property Searches) Regulations 2008 permits a charge to be made for the service and this charge is at the discretion of the authority (Regulation 8(2)).

“In these circumstances HMRC does not consider that a local authority engages as a public authority in relation to this activity and thus Section 41A of the Value Added Tax Act 1994 does not apply.

“Therefore the provision of refined data is subject to VAT at the standard rate. David confirmed that unless the Committee makes representations responding to the points in his letter, local authorities will have to start charging VAT. “

Lloyd Davies, Operations Director at the Conveyancing Association (CA) believes it’ll be consumers who end up footing the bill.

Lloyd Davies said: “In terms of what will happen, this will simply end up being an additional cost to the purchaser; essentially charged out as a disbursement. The client won’t generally be able to claim the VAT back because they’re not going to be VAT-registered, so it’s effectively a straight tax which will net an extra 20% for the Government.

“Some search providers may swallow up this extra cost, but I imagine that all will put up the cost accordingly. CA members won’t be directly impacted by this but they may still want to review their fee structures to see how the incorporate it.”

However James Sherwood-Rogers, Chairman of the Council of Property Search Organisations (CoPSO) is pleased with the change.

James Sherwood-Rogers said: “CoPSO has been lobbying for many years that VAT should be added to Local Authority CON29s. We welcome the resolution to this long outstanding issue so that a more level playing field will now exist as between regulated personal search companies and Local Authorities.

“CoPSO believes that it would be in everyone’s interest for a single date to be agreed for the charging of VAT by Local Authorities to commence, in order to facilitate a smooth transition with search providers processes and systems, and ultimately for conveyancers and their clients.”

Stephen Murray at search provider, PSG, welcomed the move.

Stephen Murray said: “From the commercial point of view of companies that provide Regulated Local Searches, this will be viewed positively. CoPSO has campaigned hard to create a more level playing field between the public and private sector involved in the production of the CON29R/Local Search. It is simply anti-competitive and a nonsense that one supplier has to charge VAT and another does not. 

“We are pleased that HMRC has recognised this. From a consumer point of view; I think as ever with councils, it will be somewhat a postcode lottery in terms of whether property buyers will be paying more. 

“Research we have been undertaking is revealing a very mixed bag, with some councils saying they will absorb the VAT increase, some taking the opportunity to review their pricing, some saying they will just add VAT to their existing fees and a surprising number still yet to decide. 

“At PSG we provide both Council searches and Regulated Local Searches and over the last two years have seen a swing back towards the Regulated version of the product, we suspect this change will give further momentum to that swing.”

Today's Conveyancer