Tax authorities have started to contact law firms directly regarding their VAT treatment of electronic searches, it has been confirmed. The Law Society said it is aware of firms receiving letters from HM Revenue & Customs asking for more details of tax arrangements.
The enquiries follow a ruling last year in which national firm Brabners had its appeal against a £68,000 VAT bill for electronic searches dismissed. In a case in which the Society intervened, the first-tier tribunal ruled that conveyancing solicitors were ‘not simply a conduit or postbox for search results’.
The Society is now in the process of reviewing its guidance on VAT disbursements, and has engaged with HMRC on what it calls the ‘inconsistencies’ arising from the tribunal’s decision.
A spokesman said: ‘We encourage firms who have received [HMRC] letters to get in touch with us directly, particularly where the firm’s practice was to pass on the search to the client.’
In a policy statement published in January, the Society said the ruling had resulted in uncertainty for solicitors and search providers seeking clarity on the correct VAT treatment of electronic property searches.
In the meantime the Society says firms should follow HMRC guidance on how searches should be treated for VAT purposes.