HMRC - Option to Tax
HMRC - Option to Tax
HMRC is pushing responsibility for options to tax onto the taxpayer, making it even more difficult to obtain confirmation.
HMRC have ended a consultation regarding the option to tax on land and buildings processes, having recognised that their ability to process options to tax has dropped over recent years.
Most recently it has been reported that HMRC is taking around six months to respond to options to tax applications and enquiries and has therefore implemented the following changes.
1: HMRC are no longer confirming the option to tax
Although the taxpayer is responsible for notifying HMRC their desire to opt to tax, under the previous process, the option to tax had to be notified to HMRC and confirmed in writing by HMRC. It seems that this confirmation leads to delays as vendors and buyers are required to present proof of an option to tax and are often having to wait months to receive the confirmation.
With effect from February 2023, HMRC will no longer send a confirmation of the option to tax, instead those wishing to use the option to tax will need to submit VAT1614 forms via email to email@example.com and the sender will receive an automatic response or acknowledgement. It is not recommended to send requests via post.
The presumption by HMRC will be that the taxpayer has made a correct option to tax and has correctly met all of the conditions. The taxpayer may have made an error when opting to tax – wrong address, an unusual shaped plot of land or not met the other conditions – and therefore the option to tax could be invalid.
As the application was made by submitting via email, there will be confirmation the application has been received, which should be sufficient to satisfy the legals involved in a property sale although it may take some time for the legal profession to accept an auto-generated email from HMRC that simply confirms an application has been made!
2: Changes to requests to confirm an option to tax
The second change is that HMRC will cease processing requests to confirm the existence of an option to tax, except in exceptional circumstances.
Previously, where a business wants confirmation of an option to tax, the taxpayer would write to or email HMRC and they in turn would confirm whether or not there is a record of an option to tax.
The change means that the option to tax itself now forms a part of the business records and those business records must be retained for a minimum of six years.
If the option to tax is more than six years old, HMRC will still accept a request for copy or proof of option. But it is not made easy. If a request is made under one of the following conditions, then HMRC will check to see if they hold a record of an option to tax for the relevant property.
- The effective opted date is more than six years ago.
- If you have been appointed as a land and property act receiver, or an Insolvency practitioner to administer the property in question.
If these conditions are met then a request to confirm that an option to tax is in place on the relevant property must be accompanied by a letter or deed of appointment of your role, otherwise HMRC will not assist.
In summary, HMRC is making it more difficult to obtain confirmation of an option to tax, pushing it back onto the taxpayer to retain appropriate records.
However, the bigger risk is the assumption that a taxpayer will make a valid option to tax in the first place. Most of the time, an option is fairly straightforward but where it involves a transfer of a going concern, there are risks around the timings and a mistake here could see a taxpayer believing they’ve opted properly, and that the sale/purchase is VAT free.
In the future, they could subsequently discover that the option wasn’t made correctly, and each side could be at risk of VAT liabilities.
If you need any help with ‘Option to Tax’ for land and building processes, or any other accountancy matters, please feel free to get in touch – we will be pleased to help.