The Law Society has issued a practice note for its solicitors which looks at VAT on disbursements. In its guidance the Law Society states that they consider that 'HMRC’s approach in deciding whether an expense is a disbursement for VAT purposes is incorrect.' They go on to say that 'HMRC’s Notice 700 is guidance and not the law. If the expense incurred by you meets the requirements of Article 79 (c) [of the VAT directive (2006/112/EC)] then you should treat the expense as a disbursement for VAT purposes.' The Law Society guidance also states in section 3.2.1 the criteria they believe are correct for an item of expenditure to qualify as a disbursement.
They state:
a) your client should have either requested that you obtain the service on their behalf or authorised you to do so;
b) in the case of a report or a search result, the final report should be sent to your client either by you or the supplier. You can retain a copy;
c) the amount you charge your client should be exactly the same as the amount charged to you by the supplier;
d) the expense should be separately itemised on the invoice you send to your client;
e) the supplier should be aware that the service is being provided to a third party, ie your client.
To comply with (b) you should give the original report to your client. Where this is not possible, for example the original search report must be provided to a mortgage provider or an original medical report must be made available to the court in a personal injury action, you must give a copy of the report to your client.
To comply with (e) you should tell the supplier the identity of your client. Where your client does not wish their identity to be revealed or the process involved (such as electronic form submission) does not enable your client's identity to be communicated to the supplier, you should provide the supplier with some identifying feature such as a client and/or file reference number.”
Members working for or with solicitor clients may wish to ensure that they have seen the guidance.