Looking Again At Options To Tax supplies of land or buildings

• Purpose: Refresher on the Option to Tax (OTT) rules for land and buildings, practical guidance on how to make an OTT, common pitfalls, interactions with TOGC and the Capital Goods Scheme, and the OTT anti‑avoidance rules.
• What OTT does: Lets a VAT‑registered taxpayer elect to charge VAT on supplies of land or buildings that would otherwise be exempt; standard OTT duration is 20 years.
• How to make an OTT: Notify HMRC using the appropriate form (usually VAT1614A for new supplies) and email the application (post‑2023 HMRC process) with property address, effective OTT date and VAT reference; legal effect depends on the decision and notification, not HMRC acknowledgement.
• Prior supplies: If exempt supplies were made before the OTT date, determine whether you qualify for automatic permission (use VAT1614A) or require HMRC permission via VAT1614H; HMRC may request extra information.
• Belated notification: HMRC may accept a belated notification if evidence shows the taxpayer acted consistently with having opted (e.g., charging VAT, paying output tax), but belated notification is not automatic backdating.
• Supplies that cannot be affected or can be disapplied: Certain supplies (dwellings, residential conversions, housing association land, charitable intended non‑business use, etc.) are excluded or require certificates (VAT1614D, VAT1614G) or recipient declarations; suppliers should retain written evidence of intended use.
• Charities nuance: Charitable intended non‑business use can disapply an OTT, but HMRC interprets “office” narrowly; suppliers may contest disapplication where the charity’s use is administrative.
• Revocation options (exiting an OTT):
  • Cooling‑off (within 6 months) via VAT1614C if conditions met and no tax has become chargeable.
  • Automatic revocation after 6 continuous years of no interest.
  • Revocation after 20 years if statutory conditions are met (forms and detailed conditions apply, or apply for HMRC permission).
• TOGC interactions: For a property TOGC to apply, the buyer must have made an OTT by the relevant date and notify the seller that the OTT will not be disapplied by the anti‑avoidance rule; timing (deposits/tax points) is critical.
• OTT anti‑avoidance rule: Targets cases where a capital item (broadly over £250,000/C GS thresholds) will be used mainly (over 80%) for exempt activities and there is connection to the occupier or financier; the rule can catch innocent transactions and creates circular complexity in some TOGC/CGS scenarios.
• Practical recommendations: Review ITT and CGS exposure before opting; keep maps and folio numbers for land, retain recipient declarations/certificates and written evidence of intended use, engage advisers early for TOGCs and revocations, and prepare submissions carefully under HMRC’s email process.
• Key reference materials: VAT Notice 742A (Opting to tax land and buildings) and VAT Notice 700/9 (Transfers of a going concern) are the primary HMRC guidance referenced.

Source CJMTax

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