Conveyancing solicitors are more than just the client's middleman when obtaining search results for a client, a judge has said, dismissing a law firm's appeal against a VAT bill for electronic searches.
The Law Society intervened in Brabners v The Commissioners for Her Majesty's Revenue & Customs, which assessed whether the firm was liable to pay VAT on the fees charged to it by third-party search agencies between 1 May 2012 and 31 July 2015. Nearly £68,000, with interest, was in dispute.
Brabners argued that search fees qualify as disbursements for VAT purposes, and are not part of a taxable supply. However, first-tier tribunal judge Christopher McNall said the firm was 'not simply a conduit or postbox for search results'.
The first-tier tribunal judge said: '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 general retainer, McNall noted, 'does not say (words to the effect of) "We will get the searches, but then what you do with them is down to you - you are on your own". If that were to be the case, then it would need carefully spelling out in the terms and conditions'.
The judgment notes that HMRC, since 1 October 1991, has been prepared to allow solicitors to treat postal search fees as disbursements on the basis that '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 Society argued that the concessionary treatment of postal searches is correct, and that there is no difference between postal and electronic searches.
McNall said he understood Chancery Lane's argument but was bound to reject it. 'Firstly, this appeal does not concern whether the concession in relation to postal search fees is right or wrong. Secondly, in any event, it seems to me that any argument as to consistency would be one as to rationality, or legitimate expectation, and, as such, would be of a character outside my jurisdiction,' he said.
Dismissing the appeal, McNall stressed that he was not dealing with a case of dishonesty, misconduct, tax avoidance or evasion. 'It is simply a case as to whether the appellant's VAT treatment of certain fees was, as a matter of law, correct or incorrect,' he stated. HMRC had not advanced any criticism of the firm's probity or integrity, or the probity, integrity or professional conduct of the firm's past or present partners or employees, McNall noted. The firm, which has offices in Liverpool, Manchester and Preston, 'acted throughout in good faith', he said.
A Society spokesperson said Chancery Lane is considering the implications of the decision for its practice note on VAT and disbursements.
A spokesperson for Brabners told the Gazette: 'We are disappointed with this outcome and are working closely with the Law Society to understand its full ramifications. We have always complied with Law Society guidelines and are concerned about the impact of the decision on law firms that deal with property conveyancing matters.'
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