Brabners LLP v Revenue and Customs (VAT - SUPPLY : Single or multiple)

Factual and Procedural Background

This opinion concerns an appeal brought by a law firm ("Appellant") specializing in conveyancing services, challenging a VAT assessment made by the tax authority ("Respondents"). The dispute relates to the VAT treatment of fees charged by third-party online search agencies for property searches obtained on behalf of the Appellant's clients between 1 May 2012 and 31 July 2015.

The Appellant obtained electronic property searches through a specialist online search agency, which invoiced the Appellant without VAT. The Appellant treated these fees as disbursements and invoiced its clients without VAT. The Respondents assessed that VAT should have been charged on these fees, contending that the fees were part of the Appellant's taxable supply of services.

The appeal was filed against a decision dated 19 October 2015, upheld on departmental review on 4 April 2016, and concerned a disputed amount of £67,776 plus interest. The hearing took place at the Liverpool Civil and Family Court on 27 and 28 April 2017, with submissions also received from the Law Society.

Legal Issues Presented

1. Whether the fees paid by the Appellant to the third-party search agency for electronic property searches qualify as disbursements for VAT purposes.
2. Whether the Appellant was required to charge VAT on these search fees when recharging them to its clients.

Arguments of the Parties

Appellant's Arguments

• The Appellant contended that it acted as the agent of its clients when obtaining the property searches, with the clients requesting or authorizing the searches on their behalf.
• The fees paid to the search agency were disbursements, excluded from the taxable amount under VAT law and EU Directive provisions (Articles 73 and 79 of the 2006 Directive).
• The Appellant argued that the search results belonged to the clients and that the separate treatment of these fees as disbursements was both legally correct and commercially sensible.
• The Appellant relied on the Law Society's submissions supporting the view that obtaining search results and providing advice based on them were conceptually distinct activities.

Respondents' Arguments

• The Respondents argued that the search fees did not meet the conditions for disbursements as set out in VAT Notice 700 Paragraph 25.1, which requires, among other things, that the client actually receives and uses the goods or services supplied by the third party.
• The search fees should be treated as part of the Appellant's taxable supply of conveyancing services since the Appellant used the search results to provide legal advice to clients.
• The Respondents cited internal guidance indicating that if the information obtained from a search is analyzed or used to produce a report, the fee is part of the taxable supply and subject to VAT.
• The Respondents also challenged the evidential adequacy of the Appellant's claim that the search results were passed on to clients, but the Tribunal did not accept this as a basis for dismissal.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Nell Gwynn House Maintenance Fund Trustees v Customs and Excise Commissioners [1999] STC 79 (House of Lords)	Distinction between expenses incurred by a supplier in making its own supply and payments made as agent on behalf of a client; disbursement treatment only applies in the latter.	The court applied this principle to determine that the Appellant incurred the search fees as part of its own supply to clients, not as an agent paying on their behalf.
Rowe & Maw (a firm) v Customs and Excise Commissioners [1975] 1 WLR 1291	Travel expenses incurred by a solicitor are part of the overall consideration for services and not disbursements.	The court used this reasoning to support the view that search fees are similarly part of the solicitor’s overall service to the client.
De Danske Bilimport rer v Skatteministeriet [2006] ECR I-4945, Case C-98/05	Whether payments are made in the name and for the account of the customer must be determined by objective criteria, not contractual terms alone.	The court emphasized that the Appellant’s characterization of the fees as disbursements is not determinative and must be assessed objectively.
Shuttleworth & Co v Commissioners of Customs and Excise [1994] VATTR 335	Expertise of solicitors includes identifying problems through searches as part of their service.	The court agreed that the Appellant’s role includes interpreting search results, supporting the view that search fees are part of the overall service.
David John Curtis [2007]	Costs incurred by solicitors to enable conveyancing services are part of their supply and not disbursements.	The court found this precedent analogous and persuasive in concluding that search fees are part of the Appellant’s taxable supply.
Barratt, Goff and Tomlinson (A firm) v HMRC [2011] UKFTT 71 (TC)	Medical records and reports obtained by solicitors in personal injury claims were treated as disbursements.	The court distinguished this case from the present, finding it materially different and not helpful for the current analysis.

Court's Reasoning and Analysis

The court began by emphasizing that the appeal was a legal question about VAT treatment, not an issue of misconduct or avoidance. It rejected the Respondents' evidential challenge, finding sufficient unchallenged evidence, including witness statements and contemporaneous documents, to address the substantive issues.

The court explained the fundamental VAT principle distinguishing payments made by a supplier in the course of its own supply from payments made purely as an agent on behalf of a client. Only in the latter case can the payment be treated as a disbursement excluded from VAT.

Applying this principle, the court found that the Appellant incurred the search fees as part of its own supply of conveyancing services. The Appellant owed clients a duty of care to conduct necessary searches and to identify risks affecting the property transaction.

The court rejected the argument that the search fees were disbursements simply because the Appellant used unique client references or sometimes forwarded search results to clients. It noted that in some cases, search results were not sent to clients, indicating the Appellant itself was the true consumer.

The court also dismissed the conceptual distinction between obtaining search results and providing advice based on them, viewing both as integral to the overall service supplied by the Appellant.

It acknowledged a historical concession allowing postal search fees to be treated as disbursements but declined to extend this to electronic searches, noting that any challenge to that concession was outside the tribunal's jurisdiction.

The court distinguished the present case from precedent involving solicitors obtaining confidential medical records, where the solicitor acted more clearly as an intermediary. Here, the searches related to public records, accessible by anyone, and the Appellant used the information as part of its professional service.

Holding and Implications

The court DISMISSED the appeal, holding that the Appellant's treatment of electronic property search fees as disbursements was incorrect and that VAT should have been charged on these fees when recharging clients.

The direct effect is that the Appellant remains liable for the disputed VAT amount plus interest. No broader legal precedent was established beyond the application of existing VAT principles to the facts of this case.