Option to Tax: Tighten Your Record-Keeping
HM Revenue & Customs is no longer issuing VAT option to tax notification receipt letters or (as a general rule) even confirm such an option is in place.
Unsurprisingly, the rationale is that it will allow HMRC to be more efficient and meet its legal and security obligations. Or in other words, there are delays which it is seeking to address: it is thought that delays of up to 12 months in dealing with option to tax notifications.
The option to tax
Property transactions are usually exempt from VAT. However, there is an option to tax, allowing businesses/owners to charge VAT on the sale or rent of commercial property, allowing tax recovery on related costs on what is an otherwise exempt supply. The decision whether to exercise the option to tax is a commercial decision, giving consideration to several factors – such as whether it’s intended to rent the property out.
Importantly, once the decision is made to exercise the option it remains in place for 20 years; it is revocable only in limited cases.
Change in procedure
Options to tax notifications (made on form VAT 1614A) should be emailed to HMRC (though it will still accept written notification). The email subject line must include the property address and postcode; and the effective date of the option to tax notification.
Importantly, from 1 February 2023 option to tax notification receipts or acknowledgment letters are no longer issued. Options notified to HMRC up to 31 January 2023 can still expect to receive a standard option to tax notification receipt.
But the reassurance of a formal receipt will not be there for notifications submitted from 1 February (including for non-emailed notifications); and HMRC advises those contacting the option to tax national unit should keep their automated responses for their records.
What does this mean?
Proper record keeping of dealings with HMRC following property transactions is always crucial. With this change in procedure, those exercising the option to tax (and their agents) should keep their own records of when notifications are communicated to HMRC and download/save and or print off the automated response. If none is received, check your spam – and if necessary, make sure you have properly completed and submitted your option to tax notification.
If you have any issues about the effectiveness or status of your VAT status, our specialist tax lawyers can assist.
If you would like us to cover an issue in the next NGM Tax Law Newsletter, we would be pleased to hear from you