Sign up for our FREE monthly newsletter

Don't miss out on amazing content

Part of our vision is to share our expert insight and knowledge to help business owners achieve success. Sign up today!

Client PortalXERO LoginClient Services Brochure
Download our Client Services Brochure

VAT Option to Tax

POSTED BY: Steve Little

23 March 18

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.

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.

It is very important to ensure that businesses are aware of all their obligations in relation to opting to tax as the absence of doing so can result in an increased VAT cost. For example, any subsequent sale or rental of the property will attract VAT.

Where the purchaser or tenant is able 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.

Planning note

Once an option to tax has been made it can only be revoked under limited circumstances. This includes within a specified ‘cooling off’ period in the first 6 months, an automatic revocation where no interest has been held for more than 6 years and after 20 years has elapsed. There are strict rules and conditions which must be met for these revocations to apply.

THE LATEST NEWS & BLOG POSTS FROM TEAM CB

Inheritance tax planning

Lifetime transfers where estate of another individual is increased

Changes to lettings relief and other exemptions April 2020

Two changes to the way Private Residence Relief works are due to come into effect

VAT treatment of Vouchers

Single purpose vouchers now have a defined tax point