VAT Treatment of Solicitors Disbursements

HMRC has announced that the concessionary VAT treatment for property searches conducted by post is to be withdrawn from 1 December 2020. The concession currently allows solicitors and conveyancers to treat postal property search fees charged to their clients as 'disbursements' meaning that these can be recharged without VAT.

Given that HMRC maintain that most electronic search fees are not disbursements, and have won a case (Brabners LLP (TC6093) on the same point at the First Tier Tax tribunal, the concession produces a confusing difference in VAT treatment between postal search fees and electronic search fees.

HMRC says that the withdrawal of the concession will remove this inconsistency and allay some of the confusion over whether costs can be treated as VAT disbursements.

I would expect HMRC to continue to focus attention on whether costs recharged by solicitors should be subject to VAT, and solicitors should consider whether other costs, for example fees charged by third party experts and recharged to clients, are truly disbursements for VAT purposes.

Disbursement treatment can be advantageous where the client cannot recover VAT. For example, private individuals engaging conveyancing services for a house. But businesses whose income is exempt from VAT, e.g. insurance companies defending a claim.

If you would like to discuss this change in more detail, please contact Steve Chamberlain, VAT Senior Manager via steve.chamberlain@monahans.co.uk