VAT: Property search fees – update
The Law Society has published “interim guidance” concerning the VAT liability of property search fees following recent discussions with HMRC. This followed the First Tier Tribunal decision in the case of Brabners LLP, which ruled that the recharging of electronic property search fees could not be treated as a disbursement for VAT purposes and therefore VAT was due on the amount recharged. (See link for our original commentary on this case https://www.macintyrehudson.co.uk/insights/article/vat-search-fees-uncertainty-over-disbursement-treatment)
HMRC has indicated a willingness to work with the Law Society in order to clarify and improve their published guidance in this area, but has confirmed that they do not intend to change the general approach set out in this guidance. This approach remains that where a property search is passed onto a client without further comment or analysis then the relevant fee may be treated as a disbursement. However, where the search is used for the purposes of providing advice or producing a report their view remains that the fee will form part of the wider charge for services and would be subject to VAT accordingly.
The Law Society has commented that although their interpretation of the relevant rules still 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.”
The full guidance issued by the Law Society can be found here. http://www.lawsociety.org.uk/news/stories/vat-on-electronic-property-searches--interim-guidance-to-firms/
We are aware that in certain cases HMRC have taken the Brabners decision as a green light to revisit the VAT treatment of professional service providers and raise assessments where there has been a perceived incorrect treatment adopted in the past. Professional firms are urged to review their own internal policies and procedures in relation to such issues to ensure that any potential exposure in this area is mitigated as fully as possible.