Telegraphic transfer (TT) fees are not disbursements for VAT purposes and are subject to VAT, as the service of electronic banking for which you are being charged is supplied by the bank to your practice, not to your client. This is not altered by the fact that the transaction you are handling is on behalf of a client.
HMRC's views on the VAT treatment of TT fees were set out in a letter from the VAT Administration Directorate published in the Law Society Gazette on 18 November 1992. This letter confirmed that TT fees are not disbursements for VAT purposes and are subject to VAT when passed on to the client.
In the Tribunal case of Shuttleworth & Co v Commissioners of Customs and Excise (LON/94/986A), it was held that the transfer of funds by a solicitor was part of the overall conveyancing service provided by a solicitor to his client. Therefore, a CHAPS fee paid by a solicitor to the bank could not, for VAT purposes, be treated as a disbursement in the solicitor's bill to his client.
You would therefore be justified in charging the TT fee as a cost to the client and subject to VAT in your invoice. The TT fee which you charge to the client has to be charged and shown as split between VAT and profit costs. The total amount you charge the client must be what your bank charges you, as you are collecting the VAT for the benefit of HMRC.
For further information, please see the Law Society's practice note VAT on disbursements.
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Disclaimer: While every effort has been made to ensure the accuracy of the information in this article, it does not constitute legal advice and cannot be relied upon as such. The Law Society does not accept any responsibility for liabilities arising as a result of reliance upon the information given.