Briefing note from Housebuilding and Development team at Boyes Turner

Changes to Option to tax

 

What is changing

From 1 February 2023, HMRC will stop issuing letters to property owners when owners ‘opt to tax’ a property to VAT.

The ‘option to tax’ is the decision to charge VAT upon disposal of a property, in order to recover input tax. It used to be known as a “VAT election”.

From the end of January 2023, owners making an option to tax there will be given a more limited official acknowledgment from HMRC, confirming that a property has been opted.

The only evidence that the option was made will be the owner’s own records and an automated receipt from HMRC confirming that an email opting to tax the property was received.

 

What does this mean?

It now becomes very important for owners of property to keep:

•  a written record of the election and the date on which it was made
•  The email of notification of the option sent to HMRC; and
•  The automated response received from HMRC

This information should be kept for the duration of the Seller’s ownership of the Property and for 6 years after sale and will form part of the owner’s essential VAT records.

 

Failure to produce this information when needed may: -

•  impact the ability of a seller/landlord to charge VAT on sale price and rents,
•  cause delay and complications to sale and lease transactions; and
•  result in difficulty addressing enquiries raised by HMRC in respect of VAT treatment of a property and related VAT accounting practices

 

Are there any exceptions?

After January 2023 HMRC will only issue a formal acknowledgment of a VAT election in the following circumstances:

•  When a receiver or insolvency practitioner is requesting it; or
•  When the option date was likely to be more than 6 years ago.

If these exceptions apply to you, HMRC have set out what your request needs to include in their policy paper “Changes in processing option to tax forms” dated 13 January 2023 which can be accessed here.

 

Next steps

If you want to discuss this further, contact Brian Dowling, Partner in the Development & House Building Team .

Boyes Turner’s Development & House Building Team acts for developers, house builders, promoters, land traders landowners and investors involved in all type and size of residential, commercial and mixed use schemes. We also advise a range development and property funding partners including traditional high street banks, specialist development financiers and mezzanine funders in respect of lending for development projects.

Our Team includes one of the Thames Valley's few specialist Plot sales teams, enabling us to offer an end-to-end service throughout the life cycle of a development project.