Deadline for notifying an option to tax (VAT) land and buildings

There are special VAT rules that allow businesses to standard rate the supply of most non-residential and commercial land and buildings (known as the option to tax). This means that subsequent supplies by the person making the option to tax will be subject to VAT at the standard rate.

HMRC had temporarily changed the time limit from 30 to 90 days for notifying an option to tax land and buildings during coronavirus. This extension applied to decisions made between 15 February 2020 and 31 July 2021. This extension has now ended.

HMRC has also confirmed that the temporary change, introduced as a result of the pandemic, to allow options to tax to be signed electronically has now been made permanent. HMRC requires evidence that the signature is from a person authorised to make the option on behalf of the business.

The ability to convert the treatment of VAT exempt land and buildings to taxable can have many benefits. The main benefit is that the person making the option to tax will be able to recover VAT on costs (subject to the usual rules) associated with the property including the purchase and refurbishment of the property.

However, any subsequent sale or rental of the property will attract VAT. Where the purchaser or tenant is able to recover the VAT charged this is not normally an issue. However, where the purchaser / tenant is not VAT registered or not fully taxable (such as bank) the VAT can become an additional (non-recoverable) cost. Once an option to tax has been made it can only be revoked under limited circumstances.