However, there has been a considerable amount of uncertainty around the VAT treatment of property-related searches and fees following the recent First-tier tribunal decision in Brabners LLP v HMRC, particularly where no VAT is charged by the search provider.
The Tribunal found that obtaining electronic property searches from a search agent forms part of the overall service provided by the solicitor. Searches enable a solicitor to advise a client and therefore, the fee for those searches cannot be treated as disbursements for VAT purposes. Instead, the standard rate of VAT should be charged at 20%.
VAT liability of search fees
HMRC published an internal manual in 2016 that sets out its view that whether or not a fee is to be treated as a disbursement will depend on how the information obtained in the search is used.
If the search information is passed on to a client without comment or analysis, the fee can be treated as a disbursement. However, if the search information is used to provide advice or a report, the fee for the search will form part of the solicitor's charge for its service and will be subject to VAT at the standard rate.
By concession, HMRC are prepared to allow solicitors to treat postal search fees as disbursements. However, it has been acknowledged that there is a need to review the position of the postal search concession. Although it remains available at the moment, HMRC has ruled out extending this to electronic searches.
What to do next
If you're unsure whether you're operating within the right guidelines, it's best to check how you pass on search information and fees sooner rather than later.
Our tax experts are on hand to provide advice and support. Contact us today with your queries.