What is a Disbursement?
When we write to you the first time we set out lots of information about your instructions to us. We explain what a disbursement is.
Most legal matters will incur disbursements, so it is important to explain why we charge them and what they are.
A ‘disbursement’ is an expenditure incurred which is necessary to progress the matter on which you instructed us. Court Fees, Search Fees and Land Registry fees are examples of disbursements.
We try to inform you in advance of the disbursements you should expect to pay and why they are necessary. If there are any changes we keep you informed and explain why the change is necessary.
Disbursements are billed to you at cost (we do not add any further costs to them). Usually, disbursements once paid to the third party by us are non-refundable to our client.
Most disbursements are paid initially from our own bank account and we then request you to repay us. Sometimes we request that you pay a disbursement to us in advance of it being paid, for instance Court fees.
When you pay us for disbursements the funds are deposited in our client account and then transferred to our Firms bank account to reimburse us if we have paid initially for the disbursement. We won’t transfer a disbursement fee that you have paid us to our own account until we have actually paid for the disbursement on your behalf.
We will inform you of the disbursement payments in our interim, final bills or in for example the case of a house purchase in the final completion statement.
Sometimes disbursements cost less or more than anticipated and if you have paid us in advance for the disbursement we will refund you as part of our final billing or request a balancing payment if they have cost more.
We will always be clear with you about the disbursements we pay on your behalf and their costs but if you have any queries please do not hesitate to contact us regarding any matters.
Please note that these fees can vary depending on the property and /or any related management companies or freeholders, and we can give you a better idea of these one we have further details on your individual circumstances.
- HM Land Registry Fee: Current Registration Fees
- Notice of Transfer fee – This fee if chargeable is set out in the lease. Often the fee is between £100 – £300+VAT
- Notice of Charge fee (if the property is to be mortgaged) – This fee is set out in the lease. Often the fee is between £100 – £300+VAT
- Deed of Covenant fee – This fee is provided by the management company for the property and can be difficult to estimate. Often it is between £100 – 300+VAT.
- Certificate of Compliance fee – To be confirmed upon receipt of the lease, as can range between £100 – £200 + VAT
For leasehold properties – you should also be aware that ground rent and service charge are likely to apply throughout your ownership of the property. We will confirm the ground rent and the anticipated service charge as soon as this we receive this information.
Disbursements and VAT
Solicitors are now required to charge VAT on most items which in the UK is currently 20%. There were some exceptions regarding disbursements and court fees, but they are explained herein and are very tightly defined. A disbursement for VAT purposes is an expense that is really the client’s direct expense, it has just been arranged for and paid for by the solicitor on behalf of the client as a matter of convenience or normal practice. An expense that isn’t a disbursement is one that the solicitor may incur whilst doing the work for the client, and pass on to the client, but is really the solicitor’s expense, paid out to aid the solicitor’s work whilst working for the client. A simplified way of looking at it (though complexities mean this won’t always be accurate) is – can the client have organised this and paid for it themselves? Eg:
- Land registry fees – yes – disbursement
- CHAPS fees on payments from the solicitor’s bank account – no – not a disbursement
The full list of criteria for a disbursement is given at the end.
VAT treatment of disbursements
There are two options:
Option one
The total invoice price, including VAT if any, is passed on to the client. No VAT is charged by the solicitor to the client on this price. The solicitor cannot reclaim any input VAT, neither can the client as the VAT invoice is not addressed to them. This option is fine to use if there is no VAT on the original disbursement invoice, or if the client is not entitled to reclaim VAT. If there is VAT on the original invoice, and the client is a VAT registered business, a better option is:
Option two
The solicitor reclaims the input VAT on the original invoice, then must charge VAT on the cost when invoicing the client.
Examples
Disbursements – statutory charges such as court fees, estate duty, land charge and land registry fees, probate fees, stamp duty, professional services of a third party such as estate agents, surveyors
Not disbursements – telegraphic transfer fees, CHAPS, travel, accommodation, postage, telephone
Specific agreements with HMRC
- Counsel’s fees – by concession the advice can be treated as if it were made direct to the client, so is treated as a disbursement for VAT purposes. The counsel’s VAT invoice can be amended by adding the name and address of the client and inserting ‘per’ before the solicitor’s own name and address. This is then recognised as a valid VAT invoice in the hands of the client and VAT can be reclaimed.
- Postal searches – this may be treated as a disbursement where the solicitor passes the document obtained by the search to the client direct or to the bank or building society involved in the client’s property purchase
- Personal search – if a solicitor pays a fee for a personal search to get information to advise a client, then the solicitor has received that information and not the client. This is not a disbursement
- Coal mining search – typically the coal authority stamps the invoice directly onto the search document. In agreement with the Law society, this is not a disbursement
- Fee for office copy entry on the Land Register – by agreement with the Law Society, if the vendor’s solicitor recharges this to their client, it is a disbursement. However, if the purchaser’s solicitor recharges this to their client it is not a disbursement.
Criteria for a disbursement
For an item to be treated as a disbursement for VAT purposes it must satisfy all of the following conditions:
- The solicitor acted as the agent of their client when they paid the third party
- The client actually received and used the goods or services provided by the third party
- The client was responsible for paying the third party
- The client authorised the solicitor to make the payment on their behalf
- The client knew the goods or services would be provided by a third party
- The outlay must be separately itemised on the client invoice
- The exact amount is invoiced to the client
- The goods or services the solicitor has paid for are clearly additional to the supplies the solicitor makes to the client themselves
- In the case of a report or search result, the client should receive the final report, although the solicitor can retain a copy
- The supplier (ie the third party) should be aware that the service is for the client and not the solicitor.