Andrew Needham looks at the changes HMRC has made to the way it acknowledges the option to tax.
Opting to tax is quite straightforward; the business completes form VAT 1614A (there are other forms in the series but this is the main one a business needs to worry about) and sends it to HMRC. A business can opt to tax one property at a time or all the properties it owns; it is the business's choice.
Change to the processing of the option to tax forms
From 1 September 2022, acknowledgement letters were replaced by a receipt letter, confirming an option to tax notification had been received and recorded by HMRC.
From 1 February 2023, HMRC has stopped issuing option to tax notification receipt letters. Options notified to HMRC before that date will still receive a standard option to tax notification receipt.
Businesses should send an option to tax notification by email to:
optiontotaxnationalunit@hmrc.gov.uk.
In the subject line, the business will need to include:
- the property address, including postcode; and
-
the effective date of the option to tax notification.
The automated response will have the date when the notification was received by HMRC, which the business should keep in its records.
A notification sent any other way than by email will not get an acknowledgement or receipt. HMRC will, however, respond if it needs more information. These changes will not impact how HMRC handles belated notifications.
Confirming the existence of an option to tax
HMRC says that it is a business’s responsibility to keep a record of its options to tax as part of its business records. These should be kept for at least six years.
HMRC will only respond if a record of an option to tax is held for the relevant property if a request is made under one of the following conditions:
- the effective opted date is likely to be over six years ago; or
-
if a Land and Property Act receiver has been appointed or an insolvency practitioner has been appointed to administer the property in question.
If these conditions are met, HMRC will ask the business to provide details of the associated land or property (or both). This must be accompanied by a letter or deed of appointment for the above role; otherwise, HMRC will not respond.
Businesses must provide the following details:
- the name of the business or person who opted to tax the property;
- the VAT registration number (if applicable);
- the full address of the land or property in question, including postcode;
- the effective date of the option to tax, if known;
- the date the business first charged VAT on the opted land or property; and
- the date the property was either acquired or a loan was taken out (or both) by the opter on the relevant property.
The main driver for the change in process is the reduction in HMRC resources required to handle OTT notifications. HMRC states that this new process has allowed the OTT department to catch up on its backlog of several months.
Potential problems with HMRC’s new approach
When buying and selling properties, it is common for a business’s legal advisers to request written acknowledgement of the option to tax, particularly when dealing with the transfer of a going concern.
This will no longer be available and will no doubt cause additional professional costs and delays in the conveyancing of commercial buildings.
Practical tip
When opting to tax, businesses should keep a copy of the VAT 1614A option to tax form and the email receipt from HMRC so they can at least show that the option to tax has been made and received by HMRC to evidence their decision.
