Update on Brabners case: VAT on disbursements

A statement on the decision which questioned whether search fees should be treated as disbursements for VAT purposes has been issued by the Law Society.

It states that members will be aware of the First-tier Tax Tribunal decision in Brabners LPP v HMRC ; here, 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 found on the basis that the searches enable the solicitor to advise and therefore, the fees for those searches could not be treated as disbursements for VAT purposes.

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.

While the decision of the First-tier Tribunal is not binding on any other tribunal or court, the decision has resulted in uncertainty for members and search providers who are seeking clarity on the correct VAT treatment of electronic property searches.

In order to address this in a meaningful way which takes into account the views of our members, the Society is establishing a working group to assist in providing updated guidance to the profession in respect of the VAT treatment of disbursements. In the meantime, in the absence of any binding adjudicated decision on the subject, we suggest that firms follow HMRC’s published guidance on the treatment of searches.

If any firm has been contacted by HMRC regarding historic VAT searches, the Law Society would be interested to hear from you, in particular if the firm’s practice was to pass on the search to the client, so satisfying the second of the eight conditions set out in HMRC’s VAT Notice 700 for treating a payment to a third party as a disbursement.

Commenting on the impact of the decision as well as how the Society plans to move forward was Christina Blacklaws. The Law Society vice president stated:

“The decision in the Brabners’ case was understandably met with concern by members of the profession.

“The non-binding nature of the decision, as well as the unique complexities of this case, have presented challenges which are taking some time to work through.

“We understand the need for certainty from members and our ongoing work is focused on ensuring we find a solution which works for all parties.”

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