Posted by Wendy Andrews on October 2, 2017
A recent VAT tribunal case on disbursements explored the VAT treatment of search fees paid for by solicitors, and found that VAT should be charged when the cost is passed on to the client.
Brabners LLP had argued that the cost of online property searches was incurred on behalf of their client, and that these had met the 8 tests for treatment as a disbursement (as set out in HMRC guidance), and therefore they did not need to charge VAT when they passed the cost on to the client.
However, HMRC argued that a test had not been met: the solicitor’s client needed to have received and used the search results in order for this treatment to apply. HMRC argued that in this case the solicitors themselves had used the information from the search in order to provide their advice on the property purchase, rather than merely passing it on to the client and allowing them to draw their own conclusions.
As a result, the Tribunal decided that, in these circumstances, VAT needed to be charged by the solicitors on their recharge of the online search fees.
As a First Tier Tribunal decision, this ruling is not binding on other taxpayers, but it may lead to a clarification of HMRC’s treatment of charges of this kind.
Please contact Wendy Andrews or your usual Bishop Fleming contact if you would like to discuss further.