VAT issue for the Legal Sector - VAT due on search fees - Brabners LLP v The Commissioners for HMRC (‘Brabners’) –
It is understood that Brabners routinely makes electronic property searches to ensure that the transaction can safely go ahead for a client. This means the client is expecting the solicitor/conveyancer to identify any risks or other factors adversely affecting the property. When in receipt of the search results, Brabners prepares a report and in the FTT’s view uses the information from the searches ‘as part and parcel of its overall service’. In this case, it was held that the search fees should not be treated as disbursements and VAT should be charged.
In summary, the FTT went on to comment that the payment is considered part of the overall consideration which the client pays for the service supplied by Brabners, and is the same even if they do not prepare a report on the searches.
It is expected that The Law Society, who submitted written arguments to the FTT, will make further representation to HMRC regarding this decision and it could very well be appealed. As a result of the above decision HMRC may target firms and seek to recover undeclared VAT going back four years. In view of this, we are recommending that legal firms review their disbursement treatment retrospectively and going forward it may be considered prudent to treat searches as subject to VAT rather than a disbursement not only to avoid assessments of VAT on current transactions but also to demonstrate ‘reasonable care’ and mitigate penalty action by HMRC.
If you have any questions please do not hesitate to contact Centurion VAT