The Appellant is a law firm which supplies conveyancing services to buyers and sellers of commercial and residential properties. In the course of so doing, it obtains local authority and local land charge 'searches', i.e. information about the property held by the relevant local authority, including planning, environmental health, and building control information, and the results are included in the Appellant's reports to its clients.
The property searches are undertaken in three ways:
The VAT dispute concerns the third method, which the Appellant uses for most of its searches. The search is conducted by a specialist online search agency engaged by the Appellant. The agency obtains the property searches from the local authority's records and passes the results to the Appellant. The agency invoices the Appellant for the cost of the search without the addition of VAT. (The FTT notes that, until early 2017, local authorities did not routinely charge VAT for searches, on the basis that they were charging simply for access to the documents, whether real or digital). The Appellant treated the agency's fee as a disbursement and invoiced the fee to its client as a disbursement without the addition of VAT, considering that this was in accordance with arts 73 and 79 Principal VAT Directive:
The Appellant submitted that its clients requested or expressly authorised it to obtain searches on their behalf, so that the Appellant was simply acting as the client's agent, and the report belonged to the client. The Appellant considered that the search fees qualified as disbursements for VAT purposes and were not part of a taxable supply.
HMRC considered that the search fee could only be treated as a disbursement if it satisfied all of the eight 'disbursement conditions' in VAT Notice 700 Paragraph 25.1:
HMRC submitted that the search fees were not simply repayment of expenditure incurred in the name and on behalf of the customer (art 79) but were consideration for the supply, and part of the charges for the Appellant's supplies (art 73). HMRC submitted that the Appellant used the search information to give advice to its clients, and so recovery of the expenditure formed part of the overall value of the Appellant's supply to its clients.
HMRC also referred to its internal VAT Taxable Person Manual 'VTAXPER47000 - 'Issues to consider: identifying disbursements in particular areas and trades: search fees':
