The Council for Licensed Conveyancers (CLC) has published new guidance on the correct VAT treatment of disbursements. The guidance note brings together information and resources with the aim of supporting firms in determining how to treat different disbursements for VAT purposes.
As well as a revised definition of the term ‘disbursement’, the guidance note includes an outline of relevant case law and links to current HMRC guidance.
It also includes several case studies, practical steps firms may wish to consider, and example invoices showing the VAT treatment of different disbursements.
Two cases have tested the application of VAT on legal disbursements; one relating to search fees, and one regarding the cost of obtaining medical records and reports in a personal injury claim.
In the case of Brabners LLP v The Commissioners for Her Majesty’s Revenue and Customs [2017] UKFTT 0666 (TC), the First-tier Tax Tribunal considered whether electronic property search fees could be treated as disbursements for VAT purposes. The FTT concluded that searches were part of the overall supply of legal services, and therefore the costs could not be treated as disbursements for VAT purposes but incorporated within the overall supply of services to the client, subject to VAT.
In 2019 the Court of Appeal made a non-binding comment that disbursements incurred on anything other than a ‘post-box’ basis (simply being a conduit for the acquisition, and subsequent passing, of information for clients) are part of the supply of services by a solicitor acting as principal for his client, and as such, are subject to VAT when invoiced.
The CLC said: “Whilst we encourage practices to refer to the guidance note when determining how disbursements are treated for VAT purposes, compliance with it is not mandatory.
“Practices are accountable to HMRC for decisions as to the VAT treatment of disbursements. How practices deal with different disbursements is a matter for them taking account of relevant facts and circumstances, and if necessary, with the benefit of their own legal advice.
“We cannot offer practices any advice on VAT matters and should questions arise, we strongly encourage practices to consult HMRC and if necessary, seek independent tax advice. “
Examples provided include the sourcing of grant of probate or letters of administration, the use of asset and will register searches, and some bank transfer fees.
The CLC invites feedback on the note, which can be emailed to policy@clc-uk.org.
