When a conveyancing deal falls through: the firm's own VAT and accounting position
Abortive transactions are a fact of life in conveyancing. A buyer pulls out after a survey, a chain breaks higher up, a mortgage offer is withdrawn, or a seller accepts a higher bid and gazumps. By the time the deal dies, the firm has often done a large part of the work: taken instructions, carried out identity and source-of-funds checks, ordered and reviewed searches, raised and chased enquiries, reported on title. The commercial outcome has changed, but the work was real.
This guide is about the firm's own tax and VAT position when a conveyancing matter aborts, not about advising the client on their wasted costs. There are three threads to handle cleanly: the VAT on any abortive-cost charge you raise, the unbilled time sitting as work in progress (WIP) and when it must be written off, and the disbursements you have already paid out. Each has a clear answer once you separate the commercial disappointment from the tax mechanics.
The single most common error, made by clients and sometimes by junior fee-earners, is to assume that because the deal did not complete, no VAT is due. That is wrong. The trigger for VAT is that you made a supply of legal services, not that the client ended up owning the property.
Is an abortive-transaction fee subject to VAT?
Yes. Legal services supplied by a solicitor (advice, conveyancing, drafting, title work) are standard-rated for VAT at 20%, and there is no exemption for residential conveyancing. A fee you charge for work actually performed is consideration for that standard-rated supply, whether or not the transaction completed.
So if your engagement letter permits an abortive-cost charge and you raise one, that charge carries 20% VAT in exactly the same way as a completion fee. The collapse of the deal changes what the client received commercially; it does not change the VAT character of the work you did. You took instructions, you raised enquiries, you reviewed the title and searches. Those were taxable supplies of legal services, and an abortive bill is simply the consideration for them.
This is the point to hold against the lay assumption that "no completion means no VAT". VAT follows the supply, not the result. For the full picture of how VAT applies across a live conveyancing matter, see our guide on conveyancing VAT rules for 2025/26.
It is also worth being clear that the registration position is unaffected by the abortive outcome. A firm must register for VAT once its taxable turnover exceeds £90,000 (the registration threshold from 1 April 2024) and may deregister below £88,000. Abortive fees are part of that taxable turnover and count towards the threshold like any other standard-rated fee. A high abortive rate does not somehow reduce the firm's taxable supplies; if anything it is a reminder to track all chargeable work, billed and abortive, when monitoring the threshold. Do not use the old £85,000 registration figure, which no longer applies.
"No completion, no fee" and what it really means for VAT
Many residential firms market a "no move, no fee" or "no completion, no legal fee" promise. It is worth being precise about what that does and does not mean for VAT.
It is a commercial pricing promise, not a VAT rule. Where the promise applies and you genuinely raise no fee, there is no consideration for the abortive work, and therefore no output VAT on the fee, because there is no fee. That is the correct analysis: no charge, no supply consideration, no VAT to account for.
But two things often survive the promise. First, you may still have disbursements to recover from the client (many "no fee" terms still allow recovery of third-party costs such as searches). Second, you will have unbilled time on the file that has to be written off. So "no completion, no fee" suppresses the output VAT on the fee, but it does not remove the disbursement and WIP questions below.
Where your retainer instead carves out an abortive-cost charge (a contribution to time spent, plus the cost of searches and a survey), that charge is a fee, it is consideration for a supply, and it is standard-rated at 20%. The label on your fee model does not decide the VAT; whether you actually raise a charge does. For how firms structure these terms, see our guide on fee structures for UK residential conveyancing firms.
The tax point on an abortive charge (VATA 1994 s.6)
Knowing that the abortive fee is standard-rated is only half the question. You also need the tax point: the moment you account for the output VAT to HMRC.
Under VATA 1994 s.6, the basic tax point for a supply of services is when the services are performed or completed (s.6(3)). On an abortive matter, that is effectively when you close the file as aborted and stop work. But the basic tax point is overridden where an actual tax point arises earlier: if you issue a VAT invoice or receive payment before the basic tax point, the tax point moves to that earlier event (s.6(4)). The 14-day rule (s.6(5)) then makes the invoice date the tax point where you issue a VAT invoice within 14 days after the basic tax point, unless you elect out.
The solicitor-specific point matters here. A "request for payment" or "request for payment on account" is not a VAT invoice and creates no tax point. Output VAT on the abortive charge does not crystallise when you send a request for money; it crystallises when you issue the bill or VAT invoice, or when you receive payment, whichever is first. In practice, account for the output VAT on the abortive fee in the VAT period in which you raise the abortive bill or VAT invoice, or are paid, whichever comes first. This is explained in full in our guide on the VAT tax point and time of supply for law-firm billing.
Work in progress on an abortive matter (FRS 102)
Unbilled time is work in progress. Under FRS 102 Section 23, a firm recognises revenue (and so carries WIP as an asset) as it obtains the right to consideration for the performance of its services, on a reliable-measurement basis. On a live matter heading to completion, that asset sits on the balance sheet and is taxed as it is recognised, not when the bill goes out.
When a deal aborts, recoverability changes. The right to consideration may have shrunk or disappeared: if your retainer gives you no abortive charge, or the client cannot pay, the unbilled time is no longer fully recoverable. The correct treatment is to reduce the WIP carrying value to its recoverable amount, writing off the part you will not bill or cannot recover. That reduces the revenue recognised in the period, which in turn reduces the firm's taxable profit for that period.
Two framing points keep this accurate. First, it is a recognition and measurement question, not a discrete "loss" you claim: you are carrying the asset at what you can actually recover, and the reduction flows naturally into the accounts and the tax computation. Second, most law firms are on the accruals basis. From 6 April 2024 the cash basis became the default for unincorporated businesses, but LLPs and partnerships with a corporate partner are excluded from it, so the typical conveyancing firm computes on accruals and these WIP movements do affect the tax computation. Do not assume a firm can sidestep this by using the cash basis. For the wider working-capital discipline, see our guide on reducing law-firm lock-up.
It also helps to be honest about the difference between the abortive matter that you genuinely cannot bill and the matter where you simply choose not to bill. If your retainer gives you a contractual right to an abortive charge and the client is good for it, the recoverable amount of the WIP is the chargeable value, and you should bill it rather than write it off. The write-off is for time you have no realistic prospect of recovering: where there is no abortive charge in the retainer, where the client cannot pay, or where the commercial relationship makes recovery impractical. Measuring WIP at its recoverable amount is therefore a judgement made on the facts of each dead file, not an automatic reduction to nil.
A high abortive rate compounds this across the practice. Residential conveyancing fall-through rates can be material, and a firm that leaves the unbilled time on every collapsed matter sitting at full value on the balance sheet will overstate both its WIP asset and its recognised revenue. Reviewing abortive matters promptly, and writing WIP down to recoverable amount as files die rather than at a year-end clean-up, keeps the accounts honest and avoids a large, lumpy adjustment later.
Disbursements already incurred when the deal collapses
By the time a conveyance aborts, you will often have paid third-party costs: local and other searches, an OS1 or OS2 priority search, a Land Registry fee, a bankruptcy (K16) search, a CHAPS or telegraphic-transfer fee. The question is how to recharge each one.
The abortive nature of the matter does not change whether a cost was a disbursement. It only changes whether you will recover it from the client. So apply exactly the same eight-condition disbursement test you would on a completing matter (VAT Notice 700 §25.1.1): you acted as the client's agent in paying the third party; the client received and used the supply; the client was responsible for paying; the client authorised it; the client knew a third party would supply; the outlay is separately itemised; you recover only the exact amount paid; and the supply is clearly additional to your own. If all eight are met, the recharge is outside the scope of VAT. If any condition fails, the recharge is part of your standard-rated supply and VAT is added.
In practice, the clean disbursements on a conveyancing file (court or tribunal fees, Land Registry registration fees, and the property transaction tax paid for the client) are recharged with no VAT because the firm is a pure conduit for a cost the client is liable for. The items most likely to trip a firm up are the searches it interprets and the bank fees charged to the firm, both of which are standard-rated. The abortive context does not move any of these into a different box; it simply determines whether you recover them.
SDLT (in England and Northern Ireland), LBTT (Scotland) and LTT (Wales) usually do not feature on an aborted file because the property transaction tax falls at completion, which by definition did not happen. If SDLT had been paid early in error, that is a refund or overpayment matter, covered in our guide on SDLT refund and overpayment claims for conveyancers.
Search fees on an abortive matter (Brabners)
Search fees are the area most likely to be mishandled, and the abortive scenario does not change the analysis. In Brabners LLP v HMRC [2017] UKFTT 0666 (TC), the Tribunal held that electronic property search fees, where the firm used the search results "as part and parcel of its overall service" by interpreting them and reporting on them, were not disbursements: the searches were a cost component of the firm's own standard-rated supply, so VAT was due (the firm faced an assessment of £67,776).
HMRC's settled position in Revenue and Customs Brief 6 (2020) withdrew the informal 1991 postal-search concession from 1 December 2020 and put postal and electronic searches on the same functional test. So whether a search fee is a disbursement turns on how you used the result, not on how you obtained it and not on whether the deal completed.
Applied to an abortive bill: a search you read and interpreted in advising the client is part of your standard-rated supply, so if you recharge it you add 20% VAT. A search you genuinely passed through to the client unused, meeting all eight conditions, can be recharged as a VAT-free disbursement. The Brabners principle does not flip just because the matter died. For the full treatment, see our guides on disbursements versus recharges in conveyancing VAT and the wider conveyancing VAT rules.
CHAPS, bank and panel-manager fees on an abortive file
A CHAPS or telegraphic-transfer fee that your bank charges you is a supply from the bank to the firm, not to the client. It cannot meet the agency and "client received the supply" limbs of the disbursement test, so it is a standard-rated recharge: if you pass it on, you add 20% VAT. The same applies to panel-manager fees and similar charges that the third party bills to the firm rather than to the client.
This is true on a live matter and equally true on an abortive one. Treat these as standard-rated recharges and do not be tempted to label them disbursements simply because they were a genuine out-of-pocket cost; the question is who the third party supplied, and here it supplied the firm.
Client account and money on account when a deal aborts
Where you hold money on account in client account and the deal collapses, that money remains the client's. Under the SRA Accounts Rules you must return unused client money promptly, or apply it to a sum you have properly billed. You may only transfer your own costs out of client account after you have delivered a bill or written notification of the costs (Rule 4.3), and then only for the specific sum identified.
Do not hold the balance as a convenience or use the client account as a holding facility, which would breach the banking-facility prohibition. This is regulatory context rather than the core tax point, but it sits alongside the abortive billing decision. For the detail, see our guide on client account handling in residential conveyancing.
Worked examples
These are illustrative sketches to show the mechanics, not advice on any particular matter. Figures are simplified.
Example 1: abortive purchase, fee charged
A residential purchase collapses after the buyer pulls out following an adverse survey. The firm's retainer allows an abortive-cost charge. The firm bills a fixed abortive charge for the work done, plus the cost of two property searches it had ordered and interpreted in its advice. VAT at 20% applies to the abortive fee, and (because the firm interpreted the searches in its advice, per Brabners) also to the recharged searches. The lesson: abortive does not mean VAT-free; the fee and any interpreted searches are standard-rated.
Example 2: "no completion, no fee" file with disbursements outstanding
A firm operates "no move, no legal fee" and so raises no fee on a chain that breaks before exchange. There is no output VAT on the fee because there is no fee. The firm has, however, paid for searches and a priority search. It recovers the genuine pass-through disbursements that meet all eight conditions with no VAT, treats any interpreted search as a standard-rated recharge if it recovers it, and writes off the unbilled WIP to nil. The lesson: no fee means no output VAT on the fee, but disbursements and WIP still need handling.
Example 3: WIP write-off on a dead chain
A firm holds a block of unbilled time on a matter that has died with no recoverable charge (the retainer gives no abortive fee and the client cannot be billed). It writes the WIP down to nil, reducing recognised revenue and therefore taxable profit for the period under FRS 102. The lesson: carry WIP at its recoverable amount and write off what you will not bill; the reduction flows through the accounts and the tax computation, but it is a measurement adjustment, not a standalone claim.
Practical checklist for handling an abortive conveyance
- Check the retainer. Confirm whether your engagement letter allows an abortive-cost charge and the recovery of disbursements already paid. This drives everything that follows.
- Raise the abortive bill with 20% VAT on the fee where a charge applies. The fee is standard-rated; treat it like any completion fee for VAT.
- Recharge disbursements on the eight-condition test. Add VAT to interpreted searches and to CHAPS or bank fees; recharge clean pass-through disbursements with no VAT.
- Account for output VAT at the correct tax point. A request for payment is not a VAT invoice. The tax point is the bill or VAT invoice, or payment, whichever is first.
- Write WIP down to its recoverable amount. Write off the unbilled time you will not bill or cannot recover, under FRS 102.
- Return unused client money promptly or apply it only to a sum you have properly billed under Rule 4.3.
Sibling topics in this cluster cover the related conveyancing edge cases: SDLT refund and overpayment claims and conveyancing referral fees, SRA transparency and VAT.
Where firms get this wrong, and how a specialist helps
The recurring mistakes are predictable: treating the abortive fee as outside VAT because the deal did not complete; recharging interpreted searches without VAT in breach of the Brabners principle; treating a CHAPS fee as a disbursement; sending a request for payment and forgetting that it is the bill or payment, not the request, that fixes the tax point; and leaving stale WIP on the balance sheet rather than writing it down to what is recoverable. Each is avoidable with a clear abortive-billing policy and a consistent approach to WIP measurement.
If you run a conveyancing practice and want your abortive-matter billing, disbursement treatment and WIP write-off policy reviewed by accountants who work only with law firms, we can help you put a defensible, consistent approach in place. The right framework protects both your VAT position and your reported profit, and it stops a high abortive rate quietly distorting your accounts.