Revenue and Customs Brief 6 (2020): VAT treatment of property search fees charged by solicitors and conveyancers
Published 5 June 2020
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Purpose of this brief
This brief announces the withdrawal of the postal concession from 1 December 2020.
Who needs to read this
Solicitors and conveyancers who obtain property searches by post.
This announcement does not affect the VAT liability of the charges made by local authorities or HM Land Registry for undertaking the searches.
Background
The ‘postal concession’ was informally agreed between HMRC and the legal profession in 1991. It allows solicitors and conveyancers not to charge VAT on fees for property searches conducted by post, even though not meeting all the disbursement conditions set out in section 25.1.1 of HMRC’s VAT Notice 700.
The First-tier Tribunal decision in Brabners LLP (2017) TC 06093, agreed with HMRC that electronic (online) search fees were not disbursements. Allowing postal search fees to continue to be treated as VAT disbursements in all cases is inconsistent with that decision. For example, where the solicitor or conveyancer uses the search results in making their own supply of professional services, and so it is a cost component of that supply, rather than a disbursement.
Consultation and withdrawal of concession
HMRC engaged with key professional bodies to better understand their views on the Brabners decision and the postal concession.
We understand that due to changing industry practices, it is more than likely that postal searches have become obsolete and are rarely used. The concession has also caused confusion on the correct treatment of payments as disbursements. This is because it does not align with HMRC’s policy on the VAT treatment of electronic searches. The concession has no basis in law.
Withdrawal of the concession is necessary so that the VAT treatment of property searches is correct and consistent.
Next steps
The concession will be formally withdrawn on 1 December 2020.
HMRC will then publish revised guidance on VAT disbursements to ensure consistency and provide clarity.