Tribunal rules on disbursements

Les Howard
VAT Consultant
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The First Tier Tribunal has ruled on the VAT treatment of search fees invoiced as disbursements in relation to conveyancing transactions. The implications for Solicitors is likely to be significant. The Tribunal even sought submissions from the Law Society on the issue, which should raise some eyebrows.

The EU Principal VAT Directive, art 79, includes this provision:

The taxable amount shall not include the following factors:

(c)     amounts received by a taxable person from the customer, as repayment of expenditure incurred in the name and on behalf of the customer, and entered in his books in a suspense account.

The taxable person must furnish proof of the actual amount of the expenditure referred to in point (c) of the first paragraph and may not deduct any VAT which may have been charged.

The corresponding UK legislation is VAT Act 1994, s19, although it does not contain any such provision to exclude certain costs. HMRC tend to rely on the contents of Notice 700, chapter 25. The Tribunal has previously commented that this chapter does not have the force of law. See Graeme Duncan, VTD 20100. HMRC also referred to its internal guidance at VTAXPER47000. Quite why Counsel for HMRC should argue guidance and not legislation is beyond me!

The Tribunal helpfully considered case law on the issue. The best summary comes from Rowe & Maw [1975] 1 WLR 1291:

 'where the goods or services purchased are supplied to the solicitor, as here in the form of travel tickets, to enable him effectively to perform the service supplied to his client, in this case to travel to the place where the solicitor's service is required to be performed. In such case, in whatever form the solicitor recovers such expenditure from his client, whether as a separately itemised expense, or as part of an inclusive overall fee, VAT is payable because the payment is part of the overall consideration which the client pays for the service supplied by the solicitor.'

Or, put another way; if the advisor purchases a train ticket for him/herself, it is part of the cost of providing the service. If the advisor purchases a train ticket for his/her client to travel, it is a disbursement.

The full decision is well worth a read;



About Les Howard


Hi, I am a VAT Consultant, working mainly with charities. I am based in Cambridgeshire

I have over 20 years experience in VAT, and am currently also a part-time member of the Tax Tribunals.


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22nd Sep 2017 14:46

Very helpful update Les.

It might be useful for people to also note that the Law Society has added a note to their guidance on disbursements to reference the case - see:

Thanks (1)