Issues to consider: identifying disbursements in particular areas and trades: search fees
In agreement with the Law Society the following VAT treatment is to be accorded to search fees recharged by solicitors to their clients.
- Postal Search With effect from 1 October 1991, where a solicitor pays a fee for a postal search, this may be treated as a disbursement, since the solicitor merely obtains a document on behalf of the client. Here, whether the solicitor passes the document obtained from a postal search to the building society or bank in respect of a client’s property purchase, or to the client direct, the postal search fee may still be treated by the solicitor as a disbursement.
- Personal Search With effect from 1 October 1991, where the solicitor pays a fee for a personal search of official records such as are held by local authorities, in order to extract information needed to advise the client, this cannot be treated as a disbursement for VAT purposes. (Only rarely will a personal search be carried out at the Land Registry). The fee is charged for the supply of access to the official record and it is the solicitor rather than the client who receives that service. The solicitor then uses the information in order to give advice to the client and the recovery of the outlay represents part of the overall value of the solicitor’s supply to the client.
- Coal Mining Search It is customary for the coal authority to carry out the mining search and to issue a VAT invoice with the result. Typically, the invoice is stamped or written on the actual search document itself. As agreed with the Law Society, the VAT element of the search fee should be treated as input tax by the solicitor for VAT purposes. In other words, the search fee should be treated as an item of expenditure by the solicitor (not as a disbursement) and added to his bill on which VAT is charged to the client.
b. Search agencies
Following a review of policy, with effect from 1 February 1998, where the agency has obtained a fiche or document from Companies House or similar source, it should be regarded as a piece of information rather than a tangible object, and the following will apply.
- The recharge of a search fee to the customer for the provision of a fiche or document may be treated as a disbursement and outside the scope of VAT, provided the information is passed on by the agency without analysis or comment, and all the conditions outlined in section 25.1 ofNotice 700 The VAT Guide are met.
- Where a process has been carried out on the fiche or document itself, provided the agency has not used the data to inform an opinion or report, then it may treat the recharge of the search fee as a disbursement and also outside the scope of VAT. An example would be where the agency obtains a search but its customer does not have facility to read a fiche, and the agency simply converts the fiche into readable hardcopy and passes it on to the customer, without comment or analysis. The same would apply where the agency provides typewritten extracts of a fiche or document, again without analysis or comment.
- If the agency analyses, comments on, or produces a report on a fiche or document, or otherwise uses the information obtained on a search to produce a report, it may not treat the search fee as a disbursement and outside the scope of VAT when recharged to the customer. In this example, the agency could not provide the customer with the required information without utilising the content of the fiche or document. The search fee, therefore, is a component part of the agency’s costs in providing its services to the customer, and is taxable at the standard rate.
- The same rules should apply to on-line searches carried out by a solicitor: whether or not it is to be treated as a disbursement will depend on how the information is used. If it is passed on to the client without comment or analysis (that is, it meets the terms of the first and second bullets of b Search agencies), it may be treated as a disbursement. However, if the solicitor uses the information himself eg in providing advice, or a report, (as in the third bullet), it will form part of the charges for his services and will be subject to VAT.
c. Fee for office copy entry on the Land Register
The vendor has an obligation to supply sufficient documentary evidence to the purchaser of his title in the land for sale. For registered land, the Land Registration Act 1925 provides that the vendor must supply the purchaser with a copy of the entry on the register of title (office copy entry).
The Land Registration (Official Searches) Rules 1993 (SI 3276 of 1993) outlaws the use of photocopies in lieu of office copy entries and requires solicitors acting for a vendor to obtain office copy entries of the clients title from the Land Registry. The Land Registry fee for the office copies is payable by the vendor. Additionally, for the purposes of domestic conveyancing, both the National Protocol and the Standard Conditions of Sale also require the vendor to supply office copies of his title to the purchaser.
Following agreement with the Law Society in September 1994, when a vendor’s solicitor obtains an office copy entry and recharges the fee to his client he may treat it as a disbursement and outside the scope of VAT. If the cost of the office copy entry is passed on to the purchaser’s solicitor who, in turn, charges his client, the fee would not be eligible for treatment as a disbursement since it would not meet the criteria outlined in section 25.1 of Notice 700 The VAT Guide. Accordingly, if the purchaser’s solicitor charges his client for obtaining an office copy entry, VAT must be added to the solicitor’s charge for this service.