The ILFM recognise that there has been an increase in Member queries with regards to the VAT treatment of statutory charges such as land charges and land registry fees etc as a result of the Brabners First Tier Tribunal decision. For clarity, there is no change in the concession between the Law Society and HMRC (introduced in September 1994) where there is a statutory obligation imposed upon the client who receives and uses the statutory body’s supply. These types of charges are usually eligible to be treated as Disbursements for VAT purposes.
An example of this would be office copy entries obtained from the Land Registry, direct. Here the vendor has a statutory obligation imposed upon him/her to supply satisfactory documentary evidence to the purchaser of his/her title in the land for sale. Under the Land Registration Act 1925, the vendor must provide the purchaser with a copy of the entry on the register of title aka, office copy entry.
The Land Registration (Official Search) Rules 1993 prohibit the use of photocopies thus forcing the solicitor acting for the vendor to obtain physical copies of the clients title in the land for sale. Here, the supply from the Land Registry is to client and not the solicitor. The fee is met and paid by the solicitor as a matter of convenience only and may be passed on as is i.e. as a Disbursement for VAT purposes without output VAT.
Further examples of statutory charges are:
For further information and reading, there is an internal manual available on HMRC’s website which specifically addresses searches and solicitors. This can be obtained via the below link:
As final note, when trying to ascertain whether a payment qualifies to be treated as a Disbursement for VAT purposes, the ILFM strongly recommends you follow the criteria as set out in HMRC’s Notice 700 25.1.1, questioning each payment and the circumstance in which it was incurred and more importantly, questioning who received, used and benefited from the third party supply i.e. is it the practice or the client? Unfortunately, a list of what is and what isn’t a Disbursement for VAT purposes cannot be easily drawn up as some payments can be either depending on the circumstances in which they were incurred. As seen from above, the office copy entry was incurred purely to prove to the purchaser that the vendor actually owns the property for sale. The solicitor was simply acting as agent for the vendor when making the payment to the Land Registry, thus the payment qualifies be treated as a Disbursement for VAT purposes.