Land and buildings are generally exempt from VAT, but it is possible to charge VAT on supplies of commercial buildings if the taxpayer opts to tax the building. The process of how to make this option to tax election is set out in VAT notice 742A.
The taxpayer makes the decision to opt, and informs HMRC on form VAT1614A, either online or via the post, within 30 days of the decision date. Note the new physical address for submitting option to tax forms. In most cases no further action is required from HMRC.
If the taxpayer has previously earned income from the property in the 10 years before the option to tax is to apply, written permission may be required from HMRC to opt to tax if one of the automatic conditions in para 5.2 of VAT notice 742A are not met. HMRC needs to ensure there is no unfair tax gain being made with the election to opt to tax.
Previously HMRC would aim to acknowledge all applications to opt to tax within 15 working days, whether it had to provide formal permission or not. However, the new version of VAT Notice 742A has removed that 15-day target.
This is regrettable, as having HMRC acknowledge the option to tax application gives the taxpayer proof to provide to a purchaser or tenant that an option to tax election has been made, and therefore a 20% VAT charge is correct. Input tax can only be claimed if VAT has been correctly charged in the first place.
For more information contact DFC accountants in Cardiff, Wales.