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HMRC internal manual

VAT Taxable Person Manual

HM Revenue & Customs
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Issues to consider: identifying disbursements in particular areas and trades: solicitors

Solicitors often describe as a ‘disbursement’ any charge which they make over and above the basic fee for their services to the client, and would consider the term to include all payments to third parties and recharges of overhead expenses. However, although all of these expenses are attributable to a particular client, many of them are incurred by the solicitor himself in the course of making his supply. Directly attributable costs which are borne by the solicitor, sometimes referred to as ‘taxable’ disbursements, form part of the solicitor’s own supply and must be standard-rated when passed on to the client. However, solicitors may treat costs for supplies which were actually received by their clients, sometimes referred to as ‘non-taxable’ disbursements, as disbursements for VAT purposes.

Charges eligible for disbursement treatment

The following charges are usually eligible to be treated as disbursements by solicitors on behalf of their clients.

  • Statutory charges such as court fees, estateduty, incorporation fees, land charge and land registry fees, probate fees, stamp duty Here the supply by the statutory body is to the client, who has the statutory liability - the charge is met by the solicitor only as a matter of convenience (but see section c. of VTAXPER47000 in relation to personal search fees).
  • Charges for the professional services of a third party For example the sale of a property is usually organised by a solicitor, who will present a bill to the vendor for both his own services and the commission payable to the estate agent. The supply of the estate agent’s services is to the vendor, not the solicitor, and so the solicitor may treat this as a disbursement for VAT purposes. The fees of notaries, surveyors, or witnesses, and charges for police and medical reports may also fall into this category.

Charges not eligible for disbursement treatment.

In contrast, the following charges are not eligible to be treated as disbursements.

  • Charges from third parties which were actually incurred for the solicitor’s own purposes These include telegraphic transfer fees or CHAPS which represent a charge by the bank to the solicitor for the service of transferring money out of the solicitor’s bank account.

In Shuttleworth & Co (LON/94/986A) the appellant, a solicitor, arranged for money to be transferred from his client account to the client accounts of other solicitors through CHAPS - the Clearing Houses Automated Payments System. The bank’s exempt charge for this, of £25 per transfer, was recharged by Shuttleworth as a disbursement to the client. The Tribunal agreed with Customs and Excise that the bank supplied its services to the appellant who then used them to make his own supply to the client which should bear VAT.

  • General expenses borne by the solicitor or his staff These include travel, accommodation, and telephone and telex charges. But see section 7.21 of GuidanceV1-12 Valuation for guidance on goods and services provided to solicitors by clients at the client’s own expense and from the client’s own resources.

The fact that the solicitor may have withdrawn funds from a separate client account to make a payment has no bearing on the situation. If those funds were withdrawn to meet costs borne by the solicitor, the solicitor may not treat the recharge to the client as a disbursement, even if it is made at cost.

In Rowe and Maw ([1975] STC 340), the High Court ruled that travelling costs incurred by a solicitor in the course of his duties for his client and recovered from the client at cost could not be treated as a disbursement. The supply of travel was to the solicitor and therefore formed part of his onward supply of legal services to the client.