With effect from 1 February 2023, HMRC will cease issuing letters acknowledging receipt of a valid Option to Tax notification.
It remains a requirement that the taxpayer makes a valid notification to HMRC within 30 days of exercising an Option to Tax in respect of a specified property.
Taxpayers can make a notification to HMRC by email to email@example.com. The taxpayer will receive an automated email response from HMRC, which should be retained as part of the VAT records for a minimum of six years. This will be confirmation that notification has been received by HMRC, not that the Option to Tax was validly exercised and notified correctly.
If you require additional information, please get in touch. We would be delighted to discuss any queries.
What is an Option to Tax?
Supplies of property such as sale or lease are exempt for VAT. There are a few exceptions, but generally a taxpayer will be unable to recover VAT incurred on attributable costs. This exempt status can be changed by exercising an Option to Tax. If the customer is VAT registered it is an advantage for the supplier to charge VAT (the customer will recover this) as the supplier can then recover VAT on costs.
How is an Option to Tax exercised?
Simply by deciding to do so. There are some restrictions and requirements, one of which is that the decision is correctly notified to HMRC within 30 days. The Option to Tax is a decision to be made by each taxpayer individually: “opted status” does not pass with the property from the vendor to the purchaser.
How to determine whether an Option to Tax has been exercised?
A copy of the notification to HMRC and HMRC’s response should be retained as part of the taxpayer’s VAT records which are required to be held for six years. Best practice in this case is to retain Option to Tax documents indefinitely.
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