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United Kingdom VAT & Duties Tribunals Decisions

You are here: BAILII >> Databases >> United Kingdom VAT & Duties Tribunals Decisions >> Curtis v Revenue & Customs [2007] UKVAT V20330 (30 August 2007)
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Cite as: [2007] UKVAT V20330
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David John Curtis v Revenue & Customs [2007] UKVAT V20330 (30 August 2007)
    20330
    VAT – ASSESSMENT – whether the Appellant Solicitor was correct in treating specific expenditure items as disbursements – Respondents contended that the items were not disbursements because they either formed part of the legal services supplied by the solicitor or the exact amount of the charges was not passed on to the client – Appellant did not give evidence and supplied no persuasive argument to undermine the Respondents' assessment – Appeal dismissed.
    MANCHESTER TRIBUNAL CENTRE
    DAVID JOHN CURTIS Appellant
    - and -
    HER MAJESTY'S REVENUE and CUSTOMS Respondents
    Tribunal: MICHAEL TILDESLEY OBE (Chairman)

    Sitting in public in Birmingham on 16 August 2007

    Jim Johnson, accountant, for the Appellant

    Nigel Bird, counsel instructed by the Acting Solicitor for HM Revenue & Customs, for the Respondents

    © CROWN COPYRIGHT 2007

     
    DECISION
    The Appeal
  1. The Appellant was appealing against an assessment for unpaid VAT in the sum of £5,443 plus interest issued on 16 February 2006.

    2. The Dispute
  2. The Appellant was a solicitor and the sole proprietor of a legal practice specialising in domestic conveyances, probate and matrimonial work.

  3. The dispute concerned the VAT treatment of the costs of telegraphic transfers, Land Registry copy documents and land searches which included bankruptcy and title searches. The Appellant regarded the costs as disbursements of his clients and, therefore, did not charge VAT on them when invoicing his clients. The Respondents considered the costs of telegraphic transfers and Land Registry copy documents as part of the Appellant's supplies of legal services to his client, and liable to VAT at the standard rate. The Appellant charged his clients a fixed amount for the costs of land searches, including a profit element, which according to the Respondents took the costs outside the definition of disbursement and liable to VAT.

  4. The Appellant contended that only the profit element of the costs should attract VAT.

    5. The Law
  5. Where amounts are paid to a third party as agent of a client, the payments can be treated as disbursements and are excluded from the value of the supplies when calculating VAT. The relevant EC legislation is found in EC Sixth directive article 11A (3)(c). There is no corresponding UK legislation, but Notice 700 paragraph 25.1 specifies the conditions which must be satisfied before a payment can be treated as a disbursement. The conditions include:

    6. (1) The solicitor acted for his client when paying the third party
    (2) The client actually received and used the goods or services provided by the third party.
    (3) The client was responsible for paying the third party.
    (4) The client authorised the agent to make payment on his behalf.
    (5) The client knew that goods or services would be provided by a third party.
    (6) The agent's outlay must be separately itemised when invoicing the client.
    (7) The agent must recover only the exact amount he paid to the third party.
    (8) The goods or services paid for must be clearly additional to the supplies made to the client.
    The Hearing
  6. The Appellant's representative made brief submissions but called no evidence. The Tribunal received in evidence the witness statement of Karon Buckland, HM Revenue and Customs Officer who carried out a routine VAT inspection of the Appellant's business records and made the assessment under Appeal. The Respondents supplied a bundle of documents.

    7. The Facts
  7. On 11 April and 9 May 2005 Ms Buckland and Mr Perkins carried out a VAT assurance inspection of the Appellant's business records. Ms Buckland identified VAT accounting errors in the sum of £332 which were accepted by the Appellant. Ms Buckland also examined the Appellant's approach regarding disbursements. She agreed with the Appellant that the fees paid to the Land Registry to change title and the fees for local searches to check planning permission and water pipes were disbursements, not subject to VAT. Ms Buckland, however, disagreed with the Appellant's treatment of the fees for telegraphic transfers and Land Registry documents as disbursements. In her view the transfers and documents formed part of the Appellant's supplies of legal services. Ms Buckland found that the Appellant charged his clients a notional amount of £10 for land searches of any mortgages against the property and bankruptcy searches. The notional amount charged did not represent the actual cost of the searches.

  8. On 10 May 2005 Ms Buckland invited the Appellant's comments on her findings from her inspection, which was not taken up by the Appellant. On 10 June 2005 Ms Buckland issued an assessment in the sum of £5,353 plus interest for the period 08/02 to 02/05. At the request of the Respondents' Appeals Officer, Ms Buckland re-visited the Appellant's premises on 21 December 2005 and made a record of each individual transaction that had been treated incorrectly as a disbursement. Ms Buckland identified that the fees for Land Registry copy documents had been omitted from the original assessment resulting in an amended assessment in the sum of £5,443 plus interest issued on 16 February 2006.

  9. Ms Buckland treated the fees charged for the disputed disbursements as VAT inclusive amounts. She multiplied the sum of the disputed fees by 7/47 to arrive at the outstanding VAT.

    10. Reasons
  10. Mr Johnson on behalf of the Appellant submitted that the fees for Land Registry copy documents were paid out of clients' funds. Further the Appellant was simply passing onto his clients the charges imposed by the bank for the telegraphic transfers. The bank charges and fees did not attract VAT when originally imposed. In Mr Johnson's view they were disbursements.

  11. Mr Bird on behalf of the Respondents drew my attention to the VAT and Duties Tribunal decision in Shuttleworth & Co [1994] VATTR 355 which held that the standard charge by a bank for transferring money from a client account to another client account was supplied to the solicitor rather than to his client. The Tribunal Chairman, Mr Wallace stated that

    12. "In my judgment, therefore, apart from specific arrangements to the contrary it is implicit in the conveyancing function that the solicitor will not merely arrange for the funds to be transferred but will actually receive the cash into client account and will transmit it. In effecting the transfer the bank is performing a service for the solicitor rather than the client. It does not seem to me to be correct to regard the bank as performing a service for an undisclosed principal. It is to be noted that not only will the bank not know the identity of the solicitor's client, but that the client will not know which bank is involved: client will not usually know how the transfer is to be effected. In my judgment the solicitor buys in the service from the bank".
  12. Mr Johnson presented no compelling argument undermining the conclusion reached by the Tribunal in Shuttleworth & Co. I am satisfied that the Appellant purchased the telegraphic services and the copies of the Land Registry documents to enable him to provide a conveyancing service to his clients. The supplies of telegraphic services and Land Registry documents were not disbursements since they were supplied to the Appellant in his own right and not as agent of his clients. The supplies formed part of the overall conveyancing service provided by the Appellant.

  13. The Respondents as a concession will treat local authority search fees as if they are disbursements provided the actual fees are passed on to the client. In this Appeal the Appellant was not passing on the actual fees for the land and bankruptcy searches but notional fees which incorporated an element for profit costs. In such circumstances the notional fees did not meet the definition of disbursement as set out in EC Sixth directive article 11A (3)(c) and Notice 700 paragraph 25.1 which required the client to pay the actual expenditure. Mr Johnson suggested that VAT should be charged just on the profit element of the notional fee. Mr Johnson, however, supplied no authority or detailed argument to support his suggestion. I, therefore, find that the notional fees for land and bankruptcy searches were not disbursements.

  14. Section 73(1) of the Value Added Tax Act 1994 gives the Respondents authority to issue assessments for VAT when specific circumstances apply:

    15. "Where a person has failed to make any returns required under this Act … or to keep any documents and afford the facilities necessary to verify such returns or where it appears to the Commissioners that such returns are incomplete or incorrect, they may assess the amount of VAT due from him to the best of their judgment and notify it to him".
  15. In this Appeal Ms Buckland had reasonable grounds for suspecting that the Appellant's VAT returns were inaccurate because of the incorrect treatment of some expenditure items as disbursements. Under section 73(1) of the 1994 Act Ms Buckland was required to consider fairly all material placed before her by the Appellant, and on that material, come to a decision which was reasonable and not arbitrary as to the amount of tax due. In fact Ms Buckland carried out a detailed investigation of the Appellant's records and identified each individual transaction that had been treated incorrectly as a disbursement. The Appellant did not challenge Ms Buckland's calculations. I am, therefore, satisfied that assessment in the sum of £5,443 plus interest issued on 16 February 2006 was correct.

    16. Decision
  16. The onus was on the Appellant to establish on the balance of probabilities that the Respondents' amended assessment dated 16 February 2006 was incorrect. I found unconvincing the Appellant's arguments that the disputed items of expenditure were disbursements. The Appellant gave no evidence to support his arguments. He produced no authorities for his submission that VAT should only be charged on the profit element of the notional fees for land and bankruptcy searches. The Appellant supplied no alternative computation to challenge Ms Buckland's assessment of unpaid VAT. I, therefore, dismiss the Appeal. I make no order for costs.

    17. MICHAEL TILDESLEY OBE
    CHAIRMAN
    RELEASE DATE: 30 August 2007

    MAN/06/0329

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