Property Searches – CON29 Charges –  4 July 2016

Property Searches – CON29 Charges – 4 July 2016

Background

Local authorities maintain registers that contain a wide range of property information. These registers can be inspected by the public without charge, but local authorities have traditionally offered a search service as the data on the registers is generally in a somewhat ‘raw’ or ‘unrefined’ state. These search services are frequently used as part of a conveyancing service when people buy or sell property. Many of the local authorities’ customers are therefore solicitors or professional conveyancers.

To speed up the process and reduce delays, the Law Society (acting for its members the Solicitors) and the Local Government Association (on behalf of the local authorities) agreed a standardised list of questions that would be asked when requesting property searches; these standard questions are known as CON29 enquiries.

In the past these charges have been regarded as outside the scope of VAT on the presumption that only the local authorities could provide the service.

But this is not how one decides whether VAT is chargeable when a local authority raises a direct charge for its services.

The first question is whether the local authority is acting as a public authority when it provides a service, and this means is there a special legal regime (a specific piece of legislation) that places the local authority under unique conditions and either compels it or controls its activity in a way that a private ‘competitor’ would not be?

The second question (which only needs asking if a special legal regime does exist), is whether there would be a significant distortion of competition with a private competitor if the local authority was not required to charge VAT?

With regard to the CON29 searches and as reported at the CIPFA VAT Committee in November 2015, HMRC has concluded that there is no special legal regime that compels a local authority to undertake a search of its property registers.

The lack of a special legal regime means that when a local authority charges for the CON29 search service it is not doing so as a public authority and so the activity cannot be regarded as outside the scope of VAT. It is instead a business supply and so standard rated VAT should be accounted for.

Although this has effectively always been the legal position, HMRC is not seeking to recover output tax from past supplies.

Having initially set an implementation date of 1 February 2016, HMRC has agreed to a postponement and will now expect local authorities to commence accounting for standard rate VAT on all CON29 charges from 4 July 2016.