The Law Society is establishing a working group to update conveyancing solicitors on how to handle VAT for electronic property searches following a first-tier tribunal ruling.
The Law Society intervened in Brabners v The Commissioners for Her Majesty's Revenue & Customs, which assessed whether commercial firm Brabners was liable to pay VAT on the fees charged to it by third-party search agencies between 1 May 2012 and 31 July 2015. Nearly £68,000, with interest, was in dispute.
Brabners argued that search fees qualify as disbursements for VAT purposes, and are not part of a taxable supply. However, first-tier tribunal judge Christopher McNall said the firm was 'not simply a conduit or postbox for search results'.
Chancery Lane, in a policy statement, says the tribunal's decision is not binding on any other tribunal or court. However, the decision has resulted in uncertainty for members and search providers seeking clarity on the correct VAT treatment of electronic property searches.
Christina Blacklaws, vice president of the Society, said: 'The decision in the Brabners case was understandably met with concern by members of the profession. The non-binding nature of the decision, as well as the unique complexities of this case, have presented challenges which are taking some time to work through. We understand the need for certainty from members and our ongoing work is focused on ensuring we find a solution which works for all parties.'
In the meantime the Society says that firms should follow HM Revenue & Customs' guidance on how searches should be treated for VAT purposes.
However, Chancery Lane is keen to hear from firms which have been contacted by HMRC about VAT on searches. In particular, the Society wants to hear if the firm's practice was to pass on the search to the client, to satisfy the second of eight conditions set out in HMRC's VAT Notice 700 for treating a payment to a third-party as a disbursement.
National property law conference 2018
We are pleased to announce that the annual National property law conference will take place on Wednesday 10 October 2018 at the Law Society in London.
This year's conference will address the key issues affecting residential and commercial practices including the impact of Dreamvar, new regulations around anti-money laundering as well as leasehold and commonhold reform.