VAT treatment of disbursements – Brabners LLP
Brabners, like many conveyancers, were treating the cost of property searches as disbursements and as a result were not charging VAT when these costs were billed to clients. HMRC assessed Brabners for underpaid VAT on the basis that the property searches did not qualify as disbursements.
A disbursement is where one party makes payment on behalf of another for goods or services used and enjoyed by the other party. HMRC argued that these searches were a cost component of providing the conveyancing on the basis that Brabners had an obligation to provide sound legal analysis and comment on the searches commissioned. It therefore formed part of their service and should be subject to VAT.
HMRC accept that where a search is passed on without analysis or comment that it can qualify as a disbursement. Typically this will be the search agencies only as solicitors have a duty of care to review the searches before they are provided to the client. HMRC also accept that Postal Searches can be treated as disbursements. Following this decision, solicitors should review any disbursements they make and consider whether these actually qualify as disbursements in light of this decision (and HMRC existing policy) or whether they form part of the service supplied to their clients.
For further information please contact Alison Birch below:
Written April 2018.