Kerry Underwood


leave a comment »

In Brabners v The Commissioners for Her Majesty’s Revenue & Customs

the First-Tier Tribunal Tax Chamber held that VAT is payable on property searches when an agency is instructed to carry out the search.

Although this decision related to electronic searches, the same principle applies whenever an agent is used, whether the search is electronic or postal or personal, but HMRC has, by concession, treated postal searches as disbursements since 1991.

This was an appeal against a decision made by HMRC, and upheld by a departmental review, that the appellant firm of solicitors was liable to pay VAT on the search fees charged to it by search agencies.

The Tribunal held that the consumer of the search results is the firm of solicitors, as part of the conveyancing services which it provides to its clients, and not the clients themselves.

This decision relates to electronic searches conducted by Searchflow who obtained the required property searches from the local authorities digitised or dematerialised files and registers and passed them onto the firm of solicitors.

Searchflow invoiced the solicitors without the addition of VAT and the solicitors treated that fee as a disbursement which it then invoiced to its client without the addition of VAT.

HMRC successfully argued that the search fee could only be treated as disbursement if it satisfied the eight disbursement conditions in VAT Notice 700, Paragraph 25.1 which reads:


  • You acted as the agent of your client when you paid the third party


  • Your client actually received and used the goods or services provided by the third party (this condition usually prevents the agent’s own travelling and subsistence expenses, phone bills, postage, and other costs being treated as disbursements for VATpurposes)


  • Your client was responsible for paying the third party (examples include estate duty and stamp duty payable by your client on a contract to be made by the client)


  • Your client authorised you to make the payment on their behalf


  • Your client knew that the goods or services you paid for would be provided by a third party


  • Your outlay will be separately itemised when you invoice your client


  • You recover only the exact amount which you paid to the third party


  • The goods or services, which you paid for, are clearly additional to the supplies which you make to your client on your own account.


HMRC contended that the information within the search results is used by solicitors to give advice to their clients, and thus recovery of the outlay represents part of the overall value of the solicitors’ supply of services to its clients.

HMRC’s own internal manual states that if searches are passed on without analysis or comment, and the eight conditions are met, then the fees are not subject to VAT.

In any other circumstance the search fee is part of the cost of providing the solicitor’s service to the client, and thus is subject to VAT.

The solicitors argued that what was happening was that the client had requested or expressly authorised the solicitor to obtain a search on the client’s behalf and that the solicitor was merely acting as the client’s agent, with the report belonging to the client and not being part of a taxable supply.


The Tribunal said that the law relating to VAT draws a distinction between two scenarios:


  1. When the expense is paid to a third party (Searchflow) having been incurred by the solicitor in the course of making its own supply of services to the client and as part of the whole of the services rendered by the solicitors to the client; and


  1. Where specific services have been supplied by Searchflow to the client, and not to the solicitor, and the solicitor has merely acted as the client’s known and authorised representative in paying Searchflow.


Only the second case constitutes a disbursement, where VAT is not payable.

The first scenario represents part of the services supplied by the solicitor, and therefore subject to VAT.

The Tribunal referred to the well-known fact that although railway tickets are not subject to VAT, once a solicitor buys them in order to travel for the client, for example to court, then VAT must be charged to the client on the cost of the train tickets.

Here the Tribunal held that the relevant expenses paid to Searchflow were incurred by the solicitors “in the course of making its own supply of services to” the client “and as part of the whole of the services rendered by it to (its client)”.


The Tribunal said:


“50. The Appellants [the solicitors] are not simply a conduit or post-box for search results. Simple common sense dictates that clients engage the Appellant in transactional work since the Appellant knows what it is doing, knows what a search is, knows what searches to obtain, knows how to get them quickly and conveniently, and knows what to do with them when it gets them.”

The Tribunal said that this would be the case even if no report was prepared as silence from the solicitors would be taken by clients as an ‘all-clear’.

There is a twist in the judgment in that since 1 October 1991 HMRC has treated postal search fees as disbursements, that is not subject to VAT.

The Tribunal declined to state whether the concession in relation to postal search fees was right or wrong, although, reading between the lines, the Tribunal clearly thought it is wrong.

HMRC’s rationale for allowing postal search fees to escape VAT was that “the fee is charged for the supply of access to the official record and it is the solicitor rather than the client who received that service”.

It is hard to see the difference between that and what happens with an electronic search, in that in both instances the search is part of the whole of the services rendered by the solicitors to the client.



Thus the Tribunal differed from the Tribunal in

Barratt, Goff and Tomlinson (A firm) v HMRC (Law Society Intervening) [2011] UKFTT 71 (TC)

where the Tribunal allowed an appeal by a firm of solicitors and held that fees paid for medical records and reports in connection with personal injury claims were being purchased by the clients and were disbursements, and not therefore subject to VAT.

Here the Tribunal distinguished that case on the basis that the obtaining of medical legal records etc. required that the client’s consent, whereas the information contained in searches did not require a client’s consent.

Personally, I cannot see how that makes the slightest difference.


In Practice

What this means is that if, for example, the search company charges £100 for the search, then the solicitor must charge the client £100 plus VAT, and thus at present, with the VAT rate at 20% a charge of £120 would have to be made to the client.

Obviously the solicitor would then have to account to HMRC for VAT in the sum £20.

Written by kerryunderwood

April 27, 2018 at 8:29 am

Posted in Uncategorized

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: