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VAT on Disbursements: Are you getting it right?

November 2017

FOR THE LATEST POSITION PLEASE READ OUR UPDATED ARTICLE

A recent VAT finding which has resulted in a leading firm of solicitors facing a VAT bill of almost £68,000 has left many law firms reeling. Is your firm at risk?

Brabners LLP, a well-known North-West law firm has been ordered to pay £67,776 in VAT as a result of their treatment of electronic local authority property search fees on conveyancing transactions. Like so many firms, prior to 1st April 2017, Brabners LLP treated electronic local authority property search fees as a qualifying disbursement for VAT purposes and passed the cost on to their clients without adding VAT.

HMRC contended that the firm ought to have been charging VAT on the amount of the charge when invoicing their clients. This decision was appealed by the firm but on appeal, the First-tier Tribunal found in favour of HMRC and found that Brabners LLP should have charged VAT on the electronic local authority property search fees. The finding was made on the basis that, as Brabners LLP used the electronic local authority property search result when advising their clients in connection with the conveyance of the property in question, they were not simply acting as an agent of the client and, therefore, one of the eight critical criteria which must all be present to make a disbursement a qualifying disbursement for VAT purposes tests was not met.

Whilst such treatment was in accordance with guidance issued by the Law Society in their practice note of 10th March 2011, the ruling is likely to have far reaching repercussions not just for those conveyancing firms that have treated electronic local authority property search fees and other property related searches in a similar fashion, but also for other law firms, particularly litigation firms, where inconsistencies in the VAT treatment of other disbursements, such as medical report fees, is common place. It is worth noting that the First-tier Tribunal finding may yet be challenged by Brabners LLP, perhaps with the support of the Law Society.

If you would like to know more about the Brabners LLP case, the treatment of VAT on disbursements in general and what to do if your firm is in a similar situation, why not book a place on our 3 hour ‘VAT for Solicitors’ webinar for just £75 + VAT? This is taking place on Thursday 7 December 2017. Do not worry if you cannot make this date, those who have booked this webinar will have access to a recording of it for fourteen days following the webinar. If you would like to attend, please book your place using the link above or call us on 0845 6500 112 or e-mail us at info@lfpro.co.uk.

Perhaps your finance department would benefit from in-house VAT and/or SRA Accounts Rules training? If so, please call Richard Lane on 0845 6500 112 or e-mail us at info@lfpro.co.uk.

If you are not already a subscriber to our newsletter, to be kept updated on the latest legal regulatory and compliance news, including the latest developments relating to both the SRA Accounts Rules or the SRA Code of Conduct, CPD training courses for solicitors or others working in the legal sector, sign up for our FREE newsletter.


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