Changes to notifying an option to tax on land and buildings during the coronavirus pandemic

It is always wise for a business to get advice if it is looking to ‘Opt to Tax’ land or buildings which it has an interest in. 

This is particularly the case now as HMRC have made some temporary changes to the manner in which ‘Options to Tax’ can be ‘Notified’ to them.

Similar changes have been made in respect of the permission regime for ‘Opting’, revoking ‘Options’ and Real Estate Elections (‘Options’ that cover all property that a business will obtain an interest in). 

In general, the changes relate to the timing of the ‘Notification’ of decisions and the fact that ‘Notifications’ can be made with electronic signatures.

The ‘Option’ is just a decision by a business that it would like to charge VAT on income generated from a property. 

The decision is nearly always made to allow the recovery of VAT incurred on costs associated with the property.  Care needs to be taken though in making such decisions to ensure that it really is beneficial – particularly as once made the decision is irrevocable for 20 years (except in very limited circumstances).

Importantly, the decision then needs to be ‘Notified’ to HMRC in order for the decision to be valid.  Many businesses are unfortunately unaware of this vital step which can prove costly when they look to sell or transfer the property at a later stage and cannot then prove whether they have ‘Opted’ or not.

Normally, this ‘Notification’ needs to be made within 30 days usually by posting a hard-copy of a VAT1614a form signed by an authorised person within the business.

However, because of Coronavirus, HMRC would prefer that the forms are e-mailed.

For decisions that have been made between 15 Feb and 30 June 2020 businesses now have 90 days to ‘Notify’ HMRC. This may help some businesses which have struggled with admin since the beginning of the pandemic. We will need to wait to determine whether there will be a further extension to the deadline for ‘Notification’ for decisions made outside this period.

Business can email ‘Notifications’ to HMRC by contacting optiontotaxnationalunit@hmrc.gov.uk.

If you are a business sending a ‘Notification’ you can do this by submitting a form, which can be found here, with an electronic signature, as long as you can provide proof that the signature is from a person authorised to make the option on behalf of the business. 

This evidence could include e-mailing the form: 

• with an e-mail from the authorised signatory to the sender within the business, giving authority to use the electronic signature

• from the authorised signatory with their sign off in the e-mail and the form

• with an e-mail chain or a scan of correspondence showing the authority given by an authorised signatory.

Similar proof will be required if a business looks to an agent to submit the ‘Notification’ on its behalf.

If you have any queries in respect of the new rules for ‘Notifying’ ‘Options to Tax’ please contact our dedicated VAT specialists on vat@milstedlangdon.co.uk.  

It is worth noting that ‘Options to Tax’ can be complex particularly when considered as part of the transfer of a business as a going concern when stricter deadlines can still apply in respect of ‘Notifications’.

Getting VAT advice in respect of property transactions is always worthwhile as the values involved usually mean that getting the VAT treatment wrong can be very costly.