VAT Treatment on Search Fees Clarification – One for Legal/Conveyancing Teams

In the world of VAT there are often “concessionary” VAT treatments agreed which allow a VAT treatment on a specific supply to be followed even where the VAT legislation would actually suggest a different VAT liability. Such is the case with the VAT treatment that legal teams have applied to recharges to their clients for the services of property searches conducted by post. The concession – which has been in place since 1991 - enable these fees not to have VAT applied, even though they did not strictly qualify under the VAT Disbursement rules as a true disbursement.

The evolution of technology solutions to undertake such property searches, combined with a VAT case on the issue of the treatment of electronic search fees in 2017, Brabners – which concluded that these electronic search fees could not be regarded as disbursements (and were therefore subject to VAT); has created an inconsistency in the area. HMRC sees the postal concession as only creating confusion on the VAT treatment and as a result the concession will be withdrawn with effect from the 1 December 2020.

A further point of interest is that the guidance note comments that HMRC will publish some revised guidance on the VAT disbursement rules to ensure consistency. Whether this will include any other points of “clarification” we will wait to see. It’s important to remember, with the use of automated time management and billing systems across the legal services sector, that systems and coding changes may need adjustment as a result of this withdrawal.

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