HMRC has confirmed that they do not intend to change the approach set out in their published guidance as to whether a property search fee should be treated as a disbursement for VAT purposes; if the search is passed on to the client without comment or analysis, HMRC states that the fee may be treated as a disbursement. However, if the firm uses the search itself, for example in providing advice or drafting a report, HMRC’s view is that the fee will form part of the charges for its services and will therefore be subject to VAT.
Please note that this is interim guidance only and we await HMRC’s final view. In the meantime, due to its wide-reaching affect on most (if not all) law firms, we advise clients within the legal sector to get in touch with us if any further information on VAT and disbursements is required. With Making VAT Digital on the horizon it’s a good example of why VAT accounting systems should be reviewed to ensure the correct VAT coding on costs and income is being applied.