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VAT and property search fees: Tribunal to hear appeal

21 April 2017

The Law Society has sought permission to intervene in an appeal to the First-tier Tax Tribunal by a firm facing challenge by HMRC for its treatment of VAT on property search fees. The question that the tribunal will be asked to determine is whether fees for conveyancing property searches are 'disbursements' for VAT purposes. The case is to be heard before the end of April.

HMRC has well-established guidelines as to what may be treated as a disbursement for VAT purposes. The guidance, as set out in VAT Notice 700, establishes that, where services are supplied by a third party to a client and the solicitor merely acts as the client's authorised representative in obtaining and paying for those services on behalf of the client, such expenditure on those services will amount to a disbursement for VAT purposes.

HMRC also, however, provides further guidance, in respect of solicitors, through notice  VTAXPER47000 which suggests that where a solicitor makes use of a document supplied to the client by a third party, in order to advise the client, the supply is made to the solicitor and the fee for the document is therefore subject to VAT. In 2010, this approach was successfully challenged in the case of Barratt, Goff & Tomlinson v The Commissioners for Her Majesty's Revenue & Customs (which focused on whether fees for medical reports could be considered disbursements for VAT purposes).

Following its intervention in the Barratt case, the Law Society updated its practice note on VAT on disbursements in March 2011. The firm facing challenge in the present case has followed the guidance set out in the practice note.

Although the approach to VAT on local authority searches has changed since 1 January 2017, rendering the tribunal decision of direct relevance only to historical periods of taxation, the outcome might have an impact on HMRC's approach to other firms who have up to now applied the guidance set out in the practice note.