Law Society publishes interim guidance for VAT on electronic searches
Interim guidance on the decision which questioned whether search fees should be treated as disbursements for VAT purposes has been issued by the Law Society.
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, with the outcome leaving firms and search providers without clarity.
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 Brabners decision.
Published on the Law Society website, Chancery Lane details 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.
‘Although the Law Society’s interpretation of Article 79(c) differs from HMRC’s 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.’
‘HMRC has also indicated that it is willing to work with the Law Society to improve its knowledge of current working practices within the conveyancing sector in order to provide clearer guidance to the profession on the VAT treatment of items of expenditure in the future. We welcome this step.
‘Historically by concession, HMRC are prepared to allow solicitors to treat postal search fees as disbursements so that VAT will not be payable on the amount of the fee. However, HMRC has acknowledged the need to review the position in respect of the postal search concession. Although it remains available currently, HMRC has ruled out any extension of it to electronic searches.’
The Law Society concludes by issuing interim guidance on how a firm should act is approached by HMRC, stating:
‘In the meantime, if HMRC approaches your firm in relation to the VAT treatment of historic searches we would be interested to hear from you, particularly if your firm’s standard practice is to pass on the search (or a copy of the search) to the client. Please contact: [email protected].
‘Firms who are contacted by HMRC in relation to historic payments, or have questions about their historic treatment of searches, may wish to seek independent advice.’