It has been about six months since the tribunal decision in Brabners v Revenue and Customs (TC06093) in relation to online search fees and it is apparent that there is a degree of confusion as to what this means for professional services firms when invoicing for disbursement expenditure. Some firms have consistently charged VAT on these costs but many have not. For those that have not been charging VAT, the lack of commentary from HMRC on the matter and inconsistency of treatment across the sector has resulted in many firms simply deciding that the best course of action is to charge VAT on all disbursed costs.
This approach should be considered with caution as the decision did not establish a new approach from HMRC, or a new interpretation of existing legislation. A strategy which implicitly or explicitly accepts that disbursements are now subject to VAT, when there has been no change in legislation, interpretation or terms and conditions could bring into question why VAT wasn’t accounted for on disbursements for the past 4 years (the statutory period for assessment by HMRC).
The Brabners decision was only heard in the First Tier Tribunal, and whilst demonstrating HMRC’s view, the judgment is not binding on any other taxpayer. Other firms are entitled to and should review their own position and draw conclusions based on their own facts, terms and conditions and where applicable with reference to the European VAT Directive, which has precedence over HMRC’s published guidance.
Taking professional advice and/or documenting the reasons for the position taken should act as evidence of ‘reasonable care’ and this, together with the other behaviours of the taxpayer, should help with either mitigating or negating in full any financial penalty.
In early April the Law Society issued a further update to members noting that HMRC has started the process of visiting firms and issuing assessments.
This adds greater urgency to the need for firms to assess their position and make a decision about what action to take. Adopting a ‘watching brief’ is not a recommended strategy.
To discuss the Brabners decision and help to review your firm’s position contact Robert Marchant or your usual Crowe contact.