A. The first step is for your client to check with HMRC’s National Option to Tax Unit, whether they hold a record of the client having opted to tax their interest in the property. However, it should be noted that prior to 1 March 1995, if the annual value of rents was not expected to exceed 20K, there was no need to formally notify an option to tax. If this course of action does not provide clarity, the client can consider making a belated notification of an option to tax.
Schedule 10 paragraph 20 VATA 1994 does not allow a person to make a retrospective option to tax and normally written notification should be sent to HMRC within 30 days of the decision to opt. However, HMRC does have the discretion to accept notification outside of the normal 30-day time limit. This is known as belated notification.
This may seem to be a matter of semantics, but in effect opting to tax is a two-stage process; the decision is made and then notified. In the case of a belated notification, it is just the second notification stage which has been omitted. The important factor is that the client must be able to evidence a decision to opt to tax at the relevant time.
HMRC’s manual VATLP22400 provides guidance on the policy and process of a belated notification and VATLP22430 on the circumstances in which HMRC should accept that a decision to opt has been made. It states that if evidence is provided that output VAT has been charged and accounted for since the date of the decision or there is other direct documentary evidence that the decision was made, such as copies of correspondence with third parties, then HMRC would normally accept the belated notification.
In your client’s case, provided they have properly charged and accounted for VAT on the rent there should be no reason why a belated notification should be refused. The alternative is to treat the sale as exempt, refund the ” VAT” charged to the tenant and recalculate any input tax accordingly as per the partial exemption rules/ capital goods scheme if applicable for the last four years.
If you have a VAT query why not contact the VAT Advice Line on 0844 892 2470 to discuss the implications. Our team of experts have a wealth of experience and can also provide a written consultancy service at £180 per hour plus VAT.
