Changes to the Option to Tax notification process

The Option to Tax (OTT) allows a business to charge VAT on the sale or rental of commercial property. This effectively turns an exempt supply, on which you cannot recover any VAT, into a taxable supply subject to the normal rules. The attraction of the OTT is that it allows you to recover VAT on your property expenses such as legal fees, repairs, refurbishments etc.

An OTT must be notified to HMRC and the normal timescale for sending in a notification is 30 days. However, HMRC recently announced a number of changes in how it processes OTT documentation.

From 1 February 2023, a Notification of OTT must be submitted to  optiontotaxnationalunit@hmrc.gov.uk and the opter will receive an automated email response. You should keep this automated response for your records for 6 years as it will confirm to you the date HMRC has been notified. Notifications sent by any other means will not receive an acknowledgement or receipt. We recommend that records relating to an OTT should be kept for longer than 6 years as you are likely to need this information beyond this point.

HMRC have also advised that from 1 February 2023, they have stopped processing requests confirming the existence of an OTT, unless under certain circumstances. One of these conditions being where the effective option date is more than six years ago.

There are pros and cons of OTT as once made, it remains in place for 20 years and can only be revoked in limited circumstances, so it is essential to take specialist VAT advice.

If you would like to discuss this further, please email our EQ Property & Construction team at property@eqaccountants.co.uk or contact one of our offices.

Alternatively, if you have any other questions regarding VAT, please email our EQ Taxperts.