You may have seen in recent press a recent First-Tier Tribunal decision held that the law firm Brabners LLP should have accounted for VAT on the recharge of online property search fees passed on to their clients.
It has been common practice for law firms involved in property conveyancing matters to treat the recharge of property search fees as disbursements with no VAT added to the amount charged to clients where the incoming charge was without VAT. This treatment has been supported by HMRC’s guidance where the information obtained by the searches was passed on to the client without analysis or comment and all other disbursement conditions are met. The decision, on the other hand, suggests that even where the information is simply passed on the disbursement conditions are not met as the law firm is not merely a conduit for passing on the information and arranging payment but is expected to review the searches and highlight any issues as part of their professional duty.
The implication of the decision is that VAT should be accounted for on the recharges of such costs. This may cause issues for historic recharges where the service providers, such as Searchflow, did not previously charge VAT on their service and so would result in the law firm having to hand over 1/6 of the disbursement fee received assuming that the VAT cost cannot be passed on to clients. It is understood that from early 2017 local authorities have charged VAT on CON 29 and CON 290 searches. This means that VAT will be charged and passed on to the end customer.
As the decision is that of the First-Tier Tribunal it is only persuasive and it is possible Brabners LLP may appeal the decision to the Upper Tribunal. Francis Clark will follow this case closely and will provide further updates where they develop.
In the meantime where of interest please find attached a more comprehensive article stemming from the above with some practical points to consider.
Please do not hesitate to get in touch if further guidance is required.