VAT. Don’t Go, It’s Interesting.

VAT. No, Don’t Stop Reading. It’s Interesting! Sort of.

The thing about VAT, as far as I can see, is that only those few people who say they understand it are really confused.

The rest of us are bang on. We don’t understand it, and there it is.

When we are buying stuff for ourselves, it’s not really a problem. We are charged a sum usually inclusive of VAT and we pay it and that’s that.

It’s harder when we buy for our business. Sometimes the Vat we pay can be reclaimed. We by and large leave that to accountants, because one thing that is easy to understand is that it’s complicated.

The hardest part comes when we are a VAT registered business and involved in sales – particularly sales of services.

Take at random, a Solicitor selling Conveyancing expertise. Vat Registered, so you probably issue an agreed quotation which includes the VAT upon it.

If the price of the house your client has bought is £1,000,000.00 they pay a hefty stamp duty land tax, but no VAT on that million. Unless, say, the house is sold on the basis of a planning user restricting occupation in winter, as on some holiday park sites.

Then VAT will be charged.

Ooops no, as you will all remember, that changed in 2015, when the relevant Tax tribunal decided that VAT would still be payable if the planning authority said the restriction was because the building was a holiday home, but the building would be exempt from VAT if the restriction was imposed for no stated reason at all.

Also some commercial buildings are bought and sold where the option to treat the building as VAT exempt has not been taken up. In that case, full Stamp Duty Land Tax is chargeable on top of the building price and by gosh, VAT is then chargeable upon that total. Yes sir, tax is charged on the tax.

So that’s clear then

For more information on the above, read it again. I’ve got nothing.

So what’s new for the solicitor this week in the wacky world of VAT?

One question which Solicitors thought had been resolved years ago, relates to the money they have to pay out to do the job. Obviously they have to pay for premises, computers, office cleaners etc, those are general overheads.

But also in order to do the job right, they have to pay out money specifically, in relation to the particular job for the particular client.

For example, the cost of the stamps on the letters they write in relation to that job. [Remember letters? In the post?] Also, fees they pay to the Land registry.

Now in those cases, if a pound is paid for a stamp, then the solicitors account should be charging the client a pound for the stamp, yes? Not a pound plus VAT equals One pound twenty pence? That seems straight forward and the same goes for Land Registry Fees.

One other thing the Solicitor must do is purchase a “Local Search”. These are not cheap. They are directed to Local Councils, to find out whether the house has the necessary permissions even to exist, Water search to see where the drains and pipes are and who is responsible if they go wrong, searches for listed buildings, National parks, forthcoming road schemes and lots more. Often the Solicitors will make an environmental search, to tell you how near you are to the local atomic waste silos. Or landfill sites anyway.

And it is settled, as the Law Society has confirmed to Solicitors, that the cost of obtaining the search can be passed on to the client and no VAT need be charged. Because the client could have purchased the searches themselves and brought them in to the Solicitor. So, the rationale is that the Solicitor is adding value to the transaction, by studying and interpreting the search result once they are on the desk, not by buying them for the client.

Well, that’s wrong. It used to be right but this week, it’s wrong. As I said, searches are not cheap and a firm of lawyers Brabners over three years has spent and charged clients roughly £340,000.00 to purchase searches.

Between them those client have paid to Brabners £340,000.00 to reimburse them. Brabners have not made a penny by buying the searches and the taxman has received nothing, and that is all correct, as the Law Society and every other solicitor supposed.

Until this Tribunal decision, that is. –Link Here – . Seems Brabners should have charged 20% on top of the price of each search and handed it over to the HMRC. £68,000.00. Bad news for Brabners.

But presumably, the HMR&C now will be looking at every firm of Solicitors in due course. How many of them will have charged VAT on the cost of the searches they have bought, what with the Law Society having told them that would be wrong?

So if you are not a solicitor, nor running a service business registered for VAT, I hope you have passed a pleasant few moments reading this and are glad you don’t have to cope with this sort of stuff on a daily basis or at all.

But if things are otherwise, then things are different. The Solicitors’ profession and the Law Society and their Accountants are all watching this case with interest – appeals will follow.

All a bit different these days, from Bob Dylan’s imagined world:-

© “My daddy he made whiskey, my granddaddy he did too
We ain’t paid no whiskey tax since 1792”

Here’s the song, Joan Baez in 1965 – Link Here –

And as ever, for documents for use around the world do contact me or Louise here at AtkinsonNotary E7 Joseph’s Well Leeds LS3 1AB, phone 0113 8160116 and email notary@atkinsonnotary.com or via the website http://www.atkinsonnotary.com