New advice on VAT for property searches
Conveyancers should consider charging VAT on fees for electronic property searches pending a definitive court ruling, the Law Society advises today in guidance to firms on the first-tier tax tribunal ruling in Brabners. The interim guidance follows a meeting with HM Revenue & Customs to seek clarity on how HMRC intends to approach the VAT treatment of searches.
In Brabners LLP v The Commissioners for Her Majesty’s Revenue & Customs, the first-tier tribunal caused consternation across the sector by ruling that electronic property search fees be treated as part of overall client bills and thus be subject to VAT. Up to now solicitors have been able to treat postal search fees as disbursements not liable for VAT.
Chancery Lane says the decision creates ‘a considerable amount of uncertainty’. Its position is that, under Article 79(c) of the Principal VAT Directive, solicitors obtaining a report should be regarded as acting as agents for their clients and the fee for obtaining a search should therefore be considered a disbursement for VAT purposes. It has invited any firms approached by HMRC in relation to VAT on historic searches to get in contact.
According to the interim guidance, HMRC has confirmed that it does not intend to change its approach, which is that where a search is passed on to the client without comment or analysis, the fee may be treated as a disbursement. However, if the firm provides advice or makes a report on the basis of the search, HMRC’s view is that the fee will form part of the charges for its services.
The guidance continues: ‘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.’
It welcomed an indication by HMRC that it is willing to work with the Law Society to improve its knowledge of working practices in the conveyancing sector in order to provide clearer guidance.
Accountants have warned that the confusion caused by Brabners could have serious consequences for small firms. Brent Goodwin, VAT manager at accountancy firm Newby Castleman, said: ‘HMRC has effectively ripped up a long-standing concession on allowing postal property searches to be treated as disbursements. Any change may impact solicitors’ current and future billing arrangements, and might even have a bearing on disbursements from already settled accounts from as far back as four years ago, meaning lawyers will have to consider either meeting this cost themselves or look to collect VAT from their clients retrospectively.’
Firms approached by HMRC on this matter should contact: Disbursements@lawsociety.org.uk.
Kindly shared by The Law Society Gazette