VAT and Changes to HMRC’s Processes in Relation to the Option to Tax
Notifying the HMRC of Opting to Tax
There are changes looming in respect of the Option to Tax process with HMRC. This is particularly relevant for landlords and purchasers who are looking to opt to tax their property or prospective property.
From 1 February 2023, the HMRC has confirmed that they will no longer issue letters acknowledging that a property has been opted for tax.
They have instructed that from 1 February all options to tax should be sent via email to: [email protected]. Once an email has been sent, HMRC will issue an automatic email response which will effectively act as evidence as to when the Seller or the Landlord notified HMRC of the option to tax. The automatic email response will be the only confirmation of the option to tax in most cases going forwards. This email should be retained for at least 6 years (but in practice an option to tax is only revocable after at least 20 years, so it should be retained for the 20 year period if possible).
Sellers and landlords should be aware that when emailing HMRC confirming that they have opted to tax a property they should ensure that:
- the subject line of the email includes the full postal address of the property (including the postcode); and
- the effective date of the option to tax.
Requesting Confirmation of Opting to Tax
Previously, sellers and landlords could contact HMRC in order to request confirmation as to whether an option to tax had been made by a specific individual over a certain property. Unfortunately, from 1 February, HMRC have confirmed they are no longer going to respond to such requests. They will only provide a response if:
- the effective date of the option to tax is likely to be over 6 years ago; or
- the individual requesting confirmation has been appointed as a Land and Property Act receiver or an insolvency practitioner to administer the property.
This highlights the importance of making sure the Option to Tax application and automated email response is retained and kept safe. If not, it could mean tenants and/or buyers (where structuring a sale as a transfer of a going concern, for example) raise difficult questions to answer as to the VAT status of the property, especially where HMRC seem unwilling to help moving forward!
Get in touch
This article was written with the assistance of Kate Baggs. If you have any queries relating to this article or require any advice on issues you may be facing in the real estate sector, please contact Nick Ripper.