On the other hand, obtaining funds from clients to pay fees (or taxes) to Her Majesty`s Land Registry to register the client`s title or to comply with the client`s stamp duty should remain a payment, although in all cases you must ensure that the expenses have met the requirements of Article 79(c). If you charge your customer the cost of hub fees and/or management fees, these should be treated as expense items and not expenses. The net amount of the fee must be included in your invoice as part of your fee charges, on which VAT is charged at the standard rate. The total amount paid by your customer is the same as the amount you will be charged. However, Brabners suggests that this is a gray area when looking at the position from the customer`s point of view. The client considers that he receives a full service from the lawyer to complete and submit the relevant forms and that court fees are included in this comprehensive service. However, we believe that these can be distinguished from Brabners, as court fees are not used by the lawyer to inform his subsequent advice and they do not become a cost element of such advice. Payment of legal fees that are not part of the legal department In recent years, the Association of High Court Judicial Officers has had ongoing discussions with the Ministry of Justice to clarify how VAT should be levied on fees charged by High Court bailiffs or their business. This week, the Ministry of Justice issued final guidance on the position agreed with HMRC. These new guidelines have an impact on the fees of High Court Enforcement Officers, who are registered for VAT in the following cases: However, HMRC has since brought another case before the First-Tier Tax Tribunal (Brabners LLP v The Commissioners for her Majesty`s Revenue & Customs [2017] UKFTT 0666). Brabners concerned electronic property searches. In that case, the court ruled in favour of HMRC when it found that the cost of obtaining the company`s electronic property searches had been incurred as part of its own services to the client and as part of this overall service. As a result, the company was unable to treat fees paid to a third-party research organization as payment.
The decisive factor in determining whether a payment can be regarded as a VAT payment is therefore whether its refund by the customer forms part of the consideration for the `service supplied by you` or whether it is supplied to your customer for services provided by third parties. Unfortunately, case law and guidelines complicate the interpretation and application of the rules to many situations that arise in practice. The Court of Appeal`s observations in Prosser may be an indication of how courts will deal with payment processing in the future. This guide is based on an earlier practical guide and reflects developments following Brabner v. HMRC Commissioners and BA v. Prosser. We will update these guidelines as we receive further clarification from HMRC or the courts on this issue. With the payment of legal fees such as court fees, the lawyer does not receive any services and we believe that these are considered a payment. If the channel provider has charged you VAT in connection with a search, such as a mining search, it should be treated as your entry for VAT purposes (assuming non-payment processing). The search fee (i.e.
the net amount) should be treated as part of your fee, although these fees should be shown separately on the invoice and should include VAT at the standard rate. In these circumstances, the amount the customer pays for the search will be the same as the amount you will be charged. HMRC believes that if a lawyer has used the research to provide additional advice to the client, this is considered an integral part of the lawyer`s legal care and therefore cannot be treated as payment. This means that you will have to charge VAT if you charge these costs to the customer. This increases the cost to the customer if the search fee is not subject to VAT. It is considered good practice to keep the original search results/reports with title deeds or with other information stored (on paper or electronically) in the client`s name, and therefore, you should always give your client a copy of the search results. If you don`t provide your customer with at least one copy of the search results, it probably means that the fee can`t be treated as a payment. However, HMRC`s general approach, as described in its in-house VAT Taxable Person manual at 47000 and Brabners, is that fees for an online registration or report that you receive for a client and then use to advise a client cannot be treated as payment for VAT purposes, even if you follow all the steps above. BA v Prosser includes additional support in this regard. With respect to the landmark agreement, where the seller`s lawyer also uses the official copies as part of his advice (for example, in order to obtain the title number to be inserted in the transfer, or to determine which ownership restrictions apply), HMRC may, on the basis of the decisions of Brabner and BA v. Argue, argue that the fact that you have used the official copies for consultation means that the provision of the information is a supply for you and that the costs should therefore be treated as part of your overall legal services, which are subject to VAT at the standard rate, and not as payment.
Based on Brabner`s and BA`s decisions against Prosser, HMRC may argue that the fact that you have used the search results or copies of documents to give advice or certificates means that the provision of the search result is a delivery to you and that the costs should therefore be treated as fees for part of your legal services and are subject to VAT at the standard rate. instead of being treated as a payment, regardless of whether VAT was collected by your supplier or not. Land registration fees can be divided into three categories: Amounts paid by debt collectors to lawyers for court fees can be treated as payments on behalf of the creditor. Any amount collected from debtors in respect of those costs and withheld by collectors may then be regarded as a refund of the amount paid and may not fall within the scope of VAT. HMRC`s view on the VAT treatment of wire transfer charges (as bank transfer charges were previously called) was set out in a letter from the VAT Administration Directorate published in the Official Journal on 18 November 1992. That letter confirmed that the wire transfer charges do not constitute VAT payments and must be subject to VAT when passed on to the customer. If a law firm receives services from third parties, such as medical reports, etc., it will rarely happen that these costs are true VAT payments. In most cases, there is no contract with the client through the provider, the services are part of the transmission of legal services, and the lawyer does not simply act as a mailbox.
For example, the costs of arranging bank transfers (i.e. CHAPS and telegraphs) are considered part of the overall transmission service provided by a lawyer to his client and cannot be treated as VAT payments (Shuttleworth and Co v. Commissioners of Customs and Excise). This is because the service for which the fee is charged is provided by the bank to the lawyer and not to the client and is used by the lawyer to provide his legal services to the client. Personal research agencies will charge you VAT on your fees and expenses for conducting personal research. The VAT component of the levy should be treated as a wholesale input for VAT purposes. The search fee (i.e. the net amount) should be treated as an expense item (not a payment) and added to your invoice on which VAT is charged. The total amount paid by your customer is the same as the amount you will be charged. We regret the continuing lack of clarity resulting from these decisions and would like the courts to welcome the guidance and an HM Revenue and Customs (HMRC) approach that recognises and addresses this issue. But this wasn`t always the case, for many years there were clear guidelines from the Law Society on the handling of VAT payments and lawyers and cashiers had a system to follow until 2017, when HMRC challenged the legal industry`s approach to VAT on payments. Following the Brabner case, HMRC believes that very low costs can be considered payments, but this does not mean that we can also treat all costs as add-ons.