VAT: changes in processing option to tax forms

HMRC has published Revenue & Customs Brief 1 (2023) setting out changes to the way in which option to tax forms will be processed. The publication follows a six week period of consultation on the change to the process which ended in November 2022. The changes are designed to increase the HMRC productivity, allowing HMRC to turn around notifications more quickly.

Opting to tax a property for VAT purposes is a two-stage process. A taxpayer must both make the option and then notify HMRC of the option. Failure to complete either stage will invalidate an option. As such, it is important that taxpayers should retain both evidence of the making of the option to tax and its notification to HMRC.

Receipt of an option to tax notification

From 1 September 2022, HMRC replaced the issue of acknowledgement letters by a receipt letter, confirming an option to tax notification had been received, and recorded by HMRC.

From 1 February 2023, HMRC will stop issuing option to tax notification receipt letters. Options notified to HMRC before this date will get a standard option to tax notification receipt.

Taxpayers should send an option to tax notification by email to: optiontotaxnationalunit@hmrc.gov.uk. In the subject line it will be necessary to include the: (i) property address, including postcode; and (ii) effective date of the option to tax notification.

Where a notification is provided by email, an automated response will be provided which will have the date when the notification was received by HMRC which taxpayers should keep for their records.

A notification sent any way other than by email, will not get an acknowledgement or receipt. HMRC will, however, respond if they need more information.

Confirming existence of an option to tax

HMRC will stop providing confirmations of the existence of an option to tax on particular properties. HMRC point out that it is the responsibility of the taxpayer, when notifying an option to tax, to keep such information as part of their business records. These should be kept for at least 6 years.

HMRC will only respond to queries concerning whether a record of an option to tax is held for the relevant property, if a request is made in one of the following circumstances:

• the effective opted date is likely to be over 6 years ago
• if a person has been appointed as a Land and Property Act receiver, or an insolvency practitioner to administer the property in question.

If these conditions are met, HMRC will ask the person making the query to confirm an option to tax is in place on the relevant property. This must be accompanied by a letter or deed of appointment for that person’s role.

The person making the request must provide the following details:

• name of the business or person who opted to tax the property
• VAT registration number (if applicable)
• full address of the land or property in question, including postcode
• effective date of the option to tax, if known
• date VAT was first charged on the opted land or property
• date the property was either acquired or a loan was taken out (or both) by the opter on the relevant property.

Comment

Under the previous system, HMRC would acknowledge the notification of an option and carry out an extensive series of checks on the notification itself. During the six-week trial, HMRC continued to acknowledge receipt of notification but no longer acknowledged its validity – as this is the responsibility of the opter themselves. The option to tax acknowledgement letter issued by HMRC became an acknowledgement of a receipt of the notification of the option to tax from the taxpayer.

The VAT 1614A document will remain the same and taxpayers will continue to use this document to notify HMRC of an option. However, these forms should now be sent by email to HMRC in order to obtain an automated acknowledgement of receipt.