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Conveyancing searches – disbursements?

Should electronic property searches be treated as disbursements for VAT purposes? Alternatively, are they part of the legal service provided, and so subject to VAT?

Historically, HMRC have allowed conveyancers to treat postal search fees as disbursements (ie no VAT). But, the problem has arisen from Brebners [2017] when the FTT decided that fees for electronic property searches were part of the service provided by the solicitor, and thus VATable.

The current HMRC approach (as confirmed to the Law Society) is that it all depends on how the conveyancer uses the information revealed by the search. If the search is simply passed onto the client without comment then it is a disbursement; but, if the firm uses the information as part of its advice then it will be part of the service provided by the solicitor (ie VAT will apply).

To a large extent, the uncertainty has been solved by the March 2017 requirement that LAs charge VAT. But, there are historical VAT problems for firms that did not treat electronic search fees as part of the legal service provided (ie VATable), on the mistaken assumption that they were treated in the same way as postal searches (where the concession was that no VAT was charged). In the meantime, the Law Society has issued interim guidance (which is not particularly helpful – since the problem is largely out of their hands).

 

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