The Law Society has just issued updated guidance on the VAT treatment of disbursements and expenses.
The main difference between this new guidance and the guidance issued into October last year is that it takes in account HMRC’s recent announcement that the VAT ‘postal concession’ will be formally withdrawn on 1 December 2020.
Following the concession, HMRC’s view is that postal searches should be treated like most other types of searches, meaning that they cannot be treated as VAT disbursements. In other words, postal searches will in future be vatable.
It is important to remember that this will only have an impact on those clients who are not VAT registered and on supplies that did not include VAT when incurred by the law firm. If you are in doubt, it would be prudent to include the charges on your invoices as recharges and apply VAT. If you are found to have applied the disbursement treatment inappropriately, you could potentially be liable for the additional VAT, interest and penalties.
Frustratingly, the practice note is once again keen to stress that it is not legal advice, is not binding, and the Law Society will not accept any legal liability in relation to it. It has also not been discussed or agreed with HMRC, and is not binding upon HMRC.
You can read the practice note in full here.