A First-Tier Tribunal (Tax Chamber) decision has assessed a firm as liable to pay VAT on search fees charged to it by a third party search agency. 

The decision in Brabners LLP and the HMRC Commissioners concerned whether such search fees could be considered a disbursement and whether VAT should have been charged to clients. In the introduction to the decision, the judge makes plain that the issue was the interpretation of the law and not tax evasion, avoidance or misconduct. 

The tribunal agreed with HMRC that such searches were part of the overall services provided to a client by a solicitor and enabled the solicitor to provide conveyancing services to the client. Payments for searches were therefore part of the overall consideration for that service. 

The agency conducting the electronic searches had (until 2017) invoiced the firm for the cost of the search without the addition of VAT; the firm had passed on that charge to clients as repayment of expenditure incurred in the name and on behalf of the client. The position on local authority searches has changed since HMRC has required local authorities to charge VAT on CON 29 and CON29O searches since 1 January 2017 if they were able to do so at that date, and from not later than 31 March 2017. 

The Law Society intervened in the case through written submissions. The tribunal accepted that HMRC had historically made the concession that postal searches were to be treated as a disbursement, but did not accept the Law Society’s argument that no distinction could made between postal and electronic searches. 

The decision appears to be at odds with that in Barratt, Goff and Tomlinson (A firm) v HMRC (Law Society intervening) [2011[] UKFTT 71 (TC). In Barratt the tribunal came to a different decision when considering the fees paid by medical records and reports in connection with personal injury claims. In the Brabners case, the tribunal made the interesting distinction from Barratt that medical records were confidential while property records are public. 

The decision is First-Tier only and so non-binding, and its impact is limited to historic search fees. HMRC might seek to assess other firms for historic periods, although any firms in that position would have their own right of appeal to the First-Tier.  

Any appeal to the Upper Tribunal would be binding and the outcome could have wider application to other types of disbursements. 

The Law Society is considering the implications of the decision for its Practice Note on VAT and disbursements.