HMRC Guidance: extending the option to tax deadline during Coronavirus

What is an option to tax?

Under the Value Added Tax Act 1994, a taxable supply is a ‘supply of goods and services made in the United Kingdom’ where VAT is charged at the Standard Rate.

In general, the sale or renting of a commercial building or land is exempt from VAT, meaning that the owner will not be able to charge VAT on the sale price or rent. So whilst no VAT is payable in this situation, the owner of the commercial building or land also cannot recover VAT they have incurred on taxable supplies in relation to it, such as building work or expenditure for maintenance. However, the owner can opt to tax the commercial building or land.

By exercising the option, the owner can charge VAT at a standard rate on any supplies made relating to the commercial building or land (i.e. future sale) and is able to recover the tax incurred on any costs in connection with it (i.e. building work).

If the owner decides to opt to tax the commercial building or land, they have 30 days within the date of this decision to notify HMRC. If the decision is made when exempt supplies have been made previously, permission to opt to tax may be required from HMRC first.

The decision to opt will last for 20 years and can only be revoked in limited circumstances.  

What has changed since the Coronavirus pandemic?

On 14th May 2020, HMRC has published new guidance temporarily extending the deadline to notify HMRC about the option to tax on land and buildings during the Coronavirus pandemic.

As a result, the decision to opt to tax must be notified to HMRC by the business itself or the agent acting on behalf of the business within 90 days of the date the decision was made. This only applies if the decision of opting to tax was made between 15th February and 31st May 2020.

HMRC have advised that notifications can be emailed to them, details of which they have provided on their website.

Notifying the Option to HMRC as a business

Whilst the relevant notification form can be submitted to HMRC with an electronic signature, evidence must also be provided to show the signature is from an authorised person in the business.

This must be a person who has the authority to make the decision to opt on behalf of the business itself.

HMRC have provided the following examples of supplementary evidence that can be submitted by email, together with a copy of the form:

  • An email chain or a scan of the correspondence specifically showing the authorised signatory has granted the authority for the electronic signature to be used.
  • An email from the authorised signatory to the person in the business sending the notification form, which shows the person sending the form has been given authority to use the electronic signature.
  • The authorised signatory directly emails the notification form to HMRC with their sign off showing in their email and on the notification form.

Notifying the Option to HMRC as an agent

An agent can also notify HMRC that their customer has opted to tax by emailing to them the notification form with the electronic signature. If so, the agent will need to supply evidence:

  • That the electronic signature is from an individual who has the authority to make the option to tax on behalf of the business.
  • That the agent has the authority from the business to use the electronic signature.

Again, HMRC have given the following examples as evidence to be supplied by the agent when they email the form:

  • An email or chain of emails from the authorised signatory of their customer’s business, showing the agent has been given authority to use the electronic signature and email the form.
  • A scan of the correspondence which shows authority being given from the authorised signatory to the agent to use their electronic signature on the form. The correspondence will also need to show the agent has the authority to send the form on their behalf.

For further details, you can refer to the HMRC website at https://www.gov.uk/guidance/changes-to-notifying-an-option-to-tax-land-and-buildings-during-coronavirus-covid-19

Article by Kiran Manku a solicitor in the Commercial Property Department

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