VAT and Property – Do You Know If You Have Opted to Tax?

HMRC have confirmed that as of 1 February 2023, they will no longer be issuing acknowledgement letters confirming that an option to tax notification has been submitted.

Under the new approach, an automated email response will be sent when an option to tax (OTT) is notified to HMRC via the dedicated email address. This will be the only correspondence received from HMRC unless they require further information regarding the notification. Businesses should retain a copy of the email submitting the notification to HMRC, along with this automated email receipt.

Additionally, HMRC has confirmed that as of 1 February 2023, they will only respond to requests enquiring as to the OTT status of the residential or commercial property if the effective date of the OTT is more than six years old. Any requests for confirmation of an OTT will need to include the following:

• The name of the business and its VAT registration number;
• The full address of the property;
• The effective date of the OTT;
• The date when VAT was first charged on the property; and
• The date on which the property was acquired.

The risk here is that if an OTT has been made within the last six years and the business did not receive an acknowledgement letter from HMRC or does not have a copy of an automated email from HMRC, this could result in difficulties in determining the VAT position for many property deals, leading to potential delays.

The changes mean businesses need to review their current processes of keeping records of OTT and ensure that appropriate policies, such as keeping an internal VAT register, are put in place to evidence their OTT status.