Indemnity Policies via Search Agency

[James]

Hi everyone,

We obtain indemnity policies for clients via a search agency. The agency doesn’t charges us any VAT on the policy. Do pass this on to the client with VAT? I’m being different things by different people.

Thanks in advance.

[Darren Whelan]

Not a straight forward answer, I’m afraid.

The answer very much depends on what input the agency has when obtaining the policy. British Airways v Prosser Court of Appeal case highlighted that agencies like search agencies and medical reporting agencies should in fact be charging VAT on the total supply to the instructing solicitor.

“Where an agency acts as a mere ‘post-box’, obtaining and forwarding documents for a specific fee, the actual cost of the documents will usually represent “expenditure incurred in the name of and on behalf of” a client i.e. a disbursement with no VAT.

Where an agency plays a more active role (e.g. by vetting experts, having input into how a report is prepared, quality checking etc.), it is less likely to have acted as a mere post-box. Where the agency has done substantially more than act as a post-box, the cost of the documents is not “expenditure incurred in the name of and on behalf of” a client. The expense will instead have been incurred by the agency “in the course of making its own supply of services … and as part of the whole of the services rendered by it. VAT will therefore be payable on everything that the agency invoices, not just its own “fee”.”

So if the agency has merely acted as a ‘post-box’ and has billed the policy to you with no VAT, then you can treat it as a disbursement to your client with no VAT.

If the agency has not acted as a ‘post-box’ and has billed the policy to you with no VAT, then then you cannot treat it as a disbursement when billed to clients. It should be treated as a recharge subject to VAT.

Where we’re obtaining indemnity policies using agents, you need to have a conversation with the provider to understand what input they have when obtaining them. Only then can you make a decision as to how they’re passed on to your clients.

I hope that helps.

[Author]

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