Option to Tax

Supplies made out of land and commercial property (sale or rental) is exempt from VAT, subject to a tax payer opting to tax (OTT). The election makes such supplies subject to VAT at 20%, allowing recovery of VAT on expenses.

HMRC’s OTT unit now state that any enquiries will take SIXTY (60) working days to process.

This includes processing an application or responding to queries. In reality there is nothing we can do to speed up how fast HMRC process a query, but we can try to mitigate how the delay can affect a business.

Applications

  • You cannot recover VAT incurred on supplies of commercial property without an election. To minimise the delay ensure that when making an OTT the relevant forms are completed in full. If possible provide a copy of the land registry title or a map outlining what exactly must be covered in the election.

Sale of Land/Buildings

  • If you are planning to sell any property, do you know if you have to charge VAT or not?
  • If you are in the unfortunate position of having to seek HMRC clearance on whether an election is in place, you can consider taking a refundable deposit equal to the VAT, or writing a protection clause into the contract of sale concerning the VAT.
  • You do not want to find yourself in a situation where there is a fixed sale price when there is ambiguity over the VAT status. For example if a building is sold for an agreed fixed price of £100,000, and later it is discovered VAT is payable, you may have to pay out £16,666 out of your proceeds.

Transfer of a Going Concern

  • Often a TOGC involves property. In order to satisfy the TOGC conditions where a seller has elected, the purchaser must also elect – or at least notify HMRC of their intention at the date of transfer. You can also have a TOGC on property alone where there is a transfer of a ‘property letting business’.
  • Be aware when buying a business, or a property to rent, make sure you have considered the VAT and made the necessary applications in good time. Solicitors will typically accept copies of the election forms as proof of intention if you are waiting on a HMRC response.
  • A huge benefit of the TOGC treatment is that it saves the Stamp Duty payable on the VAT, a straight up cash saving.

Keep Accurate Records

While the legal requirement for keeping VAT records is six years, an election is binding for twenty years. You wouldn’t throw away legal documents related to your own house so remember the importance of keeping HMRC correspondence on the election status safe and accessible.

If you would like any further information on this topic, please get in touch with the Tax Team on 01904 464 100 or enquiry@garbutt-elliott.co.uk