Tax & Accounting News

Option to Tax Land and Buildings

18/06/2008

HM Revenue & Customs (HMRC) have issued a revised notice on the option to tax land and buildings, which took effect from 1 June 2008.

The notice relates to VAT on what is known as the supplies of land and buildings, such as a freehold sale, renting or leasing. These are normally VAT-exempt, which means that no VAT is payable, but this also means that the person making the supply cannot recover any VAT that they incur in doing so, for example on expenditure in making a building ready for occupation or on professional fees relating to the sale of land or property.

By opting to tax, the person making the supply will be liable to VAT (output tax) and will also be able to recover related VAT (input tax). If the input tax is greater than the output tax, they will be able to claim money back from HMRC.

Now HMRC has issued a revised version of its Notice 742A on the option to tax land and buildings, which explains the effects of this option and aims to help in making a decision on whether to do so. It also explains when HMRC permission is required before an option to tax is made.

Various new forms and certificates have also bee issued, which all have the force of law and must be used where appropriate.

Barry Lewis, senior partner at Harris Lipman, said: “The VAT regime is notoriously complicated and the option to tax element is no exception.

“Opting to tax is certainly not a decision that should be taken lightly and seeking advice from a VAT professional would be a wise first step, particularly as once an option has been made it cannot be revoked for 20 years, apart from a brief initial ‘cooling off’ period.

“Anyone considering such a move should contact our taxation manager Martina Fitzgerald on 020 8446 9000 or email martina.fitzgerald@harris-lipman.co.uk to explore this issue in more detail.”

Click here for full details of Notice 742A.

 

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