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Could VAT on Searches be the next PPI debacle?

11 Oct 2017   |   Ani Radountcheva   |   0 Comments

You won’t have missed, over the passed week or so, that amazingly a law firm is facing a £68,000 VAT bill for providing conveyancing searches to their clients after a tribunal ruled that the the cost of these searches should not have been treated as disbursements.

The judge ruled that as the solicitors were not just acting as a “middle man” in supplying these searches, but were also reviewing the results and offering advice to the clients, that the searches should have had VAT added on at the point the costs were recovered from their clients.

“Until early 2017, local authorities did not routinely charge VAT for searches, on the basis simply for access to documents – whether real or digital.” Tribunal judge Dr McNall noted. The firm treated the cost as a disbursement and charged its client without VAT. HMRC accessed the firms accounting records and concluded it is liable for the VAT, this was then appealed by the firm (obviously!).

·    You acted as the agent of your client when you paid the third party

·    Your client actually received and used the goods or services provided by the third party (this condition usually prevents the agent's own travelling and subsistence expenses, phone bills, postage, and other costs being treated as disbursements for VAT purposes)

·    Your client was responsible for paying the third party (examples include estate duty and stamp duty payable by your client on a contract to be made by the client)

·    Your client authorised you to make the payment on their behalf

·    Your client knew that the goods or services you paid for would be provided by a third party

·    Your outlay will be separately itemised when you invoice your client

·    You recover only the exact amount which you paid to the third party

·    The goods or services, which you paid for, are clearly additional to the supplies which you make to your client on your own account.

Now not every firm will fall foul of this new discovered loop hole by HMRC because it is only Official Local Authority Searches that are partially VAT exempt, all other search types, including Personal Local Authority Searches are fully VAT’able... so as you are passing on the VAT element of the cost to your client, you are in the clear.

So before you slap on the handcuffs and turn yourself over to the VAT Police, take a look at your internal processes and work out if you are still in the frame.

You can read the full story here.

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