{"id":32047,"date":"2016-04-15T14:42:41","date_gmt":"2016-04-15T14:42:41","guid":{"rendered":"https:\/\/www.constablevat.com\/?p=32047"},"modified":"2016-04-15T14:42:41","modified_gmt":"2016-04-15T14:42:41","slug":"blog-opted-tax","status":"publish","type":"post","link":"https:\/\/www.constablevat.com\/blog-opted-tax\/","title":{"rendered":"CVC Blog – Should you have opted to tax?"},"content":{"rendered":"
There are many VAT issues and points to consider in relation to transactions involving land. \u00a0One area where CVC receives many questions is around the question of notifying the \u2018option to tax\u2019. The grant of any interest in, or right over, land is usually an exempt supply for VAT purposes. The option to tax provisions allow for a person to tax certain supplies of land which would otherwise be VAT exempt.<\/p>\n
Whilst many of the questions raised by businesses relate to whether they are being charged VAT correctly on a transaction, one point that is often overlooked is whether steps need to be taken, in advance of the transaction taking place,<\/u> to ensure that any VAT that is charged can be reclaimed?<\/p>\n
It is often assumed that the VAT liability of land for one person is the same for another. We regularly come across cases where businesses are operating on the basis that they are required to charge VAT on the lease or sale of a property because they were charged VAT on the initial purchase as it was opted to tax by the previous owner. There is an assumption that the seller\u2019s option to tax passes to the purchaser and as a result the new owner has not notified an option to tax to HMRC. This usually only comes to light when a tenant or potential purchaser then requests to see a copy of the new owner\u2019s option to tax acknowledgement from HMRC and the failure to notify an option can have significant consequences as regards recovery of input VAT incurred on the original purchase.<\/p>\n
Each person acquiring an interest in land must consider whether they can or would wish to opt to tax the land.<\/p>\n
There are two stages in opting to tax a property<\/p>\n
\n
Making the decision to opt which may take place at a board meeting or similar, or less formally.<\/li>\n<\/ol>\n\n
Notifying HMRC of the decision. An option to tax has effect only if<\/li>\n<\/ol>\n
\n
notification of the option is given to HMRC before the end of the period of 30 days beginning with the day on which the option was exercised; and<\/li>\n
that notification is given together with such information as HMRC may require.<\/li>\n<\/ul>\n
In practice HMRC can<\/u> accept that an option to tax has been made when it has not been notified provided that all of the actions of the taxpayer are consistent with this view (e.g. they have charged VAT on rent) and they did not require HMRC\u2019s prior approval to make the option.<\/p>\n
If a business has overlooked formally notifying HMRC of an option to tax but has raised invoices and charged and accounted for VAT it may be possible to agree a belated notification provided it can be clearly evidenced that this is the case.<\/p>\n
Options to tax also need to be considered where a transfer of a going concern (TOGC) is taking place and the vendor has opted to tax any property involved in the business transfer. In such cases, it is not just important that an option has also been made by the purchaser but also that it has been notified<\/u> to HMRC in time.<\/p>\n