HM Revenue & Customs could target conveyancers for under-declaring VAT for property search fee recharges, an accountancy firm has warned, advising law firms to play safe by charging VAT. 

Last month first-tier tribunal judge Christopher Mcnall, in Brabners v The Commissioners for Her Majesty's Revenue & Customs, dismissed the law firm's appeal against a VAT bill for electronic searches.

The Law Society, which intervened in the case, is considering the implications of the ruling for its practice note on VAT and disbursements.

Armstrong Watson, an accountancy, business and financial advisory firm, has advised law firms to review their cases. In a blog post yesterday, David Graham, VAT consultant, said: 'It would be advisable for law firms now to review their current and historic position around disbursements. It is possible that HMRC may now look to target law firms for an under-declaration of VAT in relation to the recharge of search fees to their clients. The safest route in the meantime may therefore be for such searches to be treated as a vatable recharge rather than a disbursement.'

The firm has also issued a briefing note. Even though the judgment references electronic searches, Armstrong Watson says it may be 'prudent' to apply VAT to all search fee recharges until the position is clarified. There is 'no indication' that the ruling will extend to Land Registration fees paid on behalf of the client to get titles registered and these should be treated in the same manner as they have been historically.

Should HMRC target law firms, Armstrong Watson says HMRC is entitled to go back four years for non-deliberate errors. HMRC could go back as far as the quarter ending 30 September 2013 for output VAT errors.

Advising against disclosing potential historic underpayments, Armstrong Watson says 'it would however be wise to begin reviewing your position and identifying potential exposure'. Firms are advised to consider a 'VAT healthcheck review' of the business to ensure compliance - a service which Armstrong Watson says it offers.