Importance of Option to Tax Record Keeping as HMRC plan changes in 2023

We do encourage our clients who hold a number of property interests to maintain a Property Asset Register for VAT management purposes. Part of the reason for this control process is to inform current and future Finance staff as to the assets they hold interests in where their organisation has notified HMRC of their option to tax.

Managing the records in this regard will become even more important in 2023 as HMRC have decided to implement changes to their response approach when taxpayers write in to notify options. This will create some concerns, I’m sure, for those in the legal profession who seek to enforce warranties, when a property is bought and sold, as to the existence of evidence of a valid option to tax exercised on the property.

What will change from 1 February 2023
Put simply HMRC will stop issuing a formal “Option to Tax Notification Receipt” letter from this date. The responsibility is on the taxpayer to prove they have made a valid notification of an option to tax – the notification is the requirement, not proof of HMRC’s acceptance.

From the 1^st Feb 2023 on notifying an option to the Option to Tax Unit at HMRC, an automated response will be issued and should be kept in your records. This will confirm the date of the notification and will evidence that it was made in the correct timescale. Unless you email the notification to HMRC’S option to tax unit you will not receive any form of acknowledgment of receipt. The email address to use is optiontotaxnationalunit@hmrc.gov.uk

Quite often there will be situations where it is unclear whether an option to tax has been notified to HMRC – perhaps VAT has been charged on the rent of a commercial unit but no written notification can be found on the clients’ files – the property is about to be sold and the purchasers won’t accept the charge to VAT unless you can prove a valid option to tax is in place which means evidence of the approach to HMRC at the original time.

As mentioned, the law sets out that a valid notification has to be made but much is made of the confirmation response from HMRC. Yet if you hold evidence that the notification was made correctly, then should that not be sufficient? If the notification has been correctly made and the taxpayer hears nothing further from HMRC questioning the validity of the option, then this change in the response process would suggest that HMRC see no issue with the option made, otherwise they would have responded on the point.

HMRC will also stop processing requests confirming the existence of an Option to Tax, unless under certain circumstances and then they will check their records to see if there is an option to tax on file. The circumstances, as ever with HMRC, are quite specific, however (extract from HMRC guidance):”

1. The effective opted date is likely to be over 6 years ago, or
   
   
2. If you have been appointed as a Land and Property Act Receiver, or an Insolvency Practitioner to administer the property in question.

 If these conditions are met a request to confirm that an Option to Tax is in place on the relevant property must be accompanied by a letter or deed of appointment of your role, otherwise we are unable to assist.

You should also please provide the following details:

• Name of the Business/person who had opted to tax the property  
• A VAT Registration Number (if applicable)  
• The full address of the land/property in question, including postcode.  
• The effective date of the option to tax if known. 
• The date you first charged VAT on the opted land/property.  
• The date the property was acquired and/or a loan was taken out by the opter on the relevant property.”

Clients have already mentioned their unease at the lack of a formal acceptance letter when submitting an option to tax but perhaps this step change – which may in part be driven by resource constraints at HMRC – is also a prompt for taxpayers to maintain their VAT records more effectively? Either way, it’s a change in VAT processes which is on its way for 2023 and there’s sure to be more to follow.

For the avoidance of doubt, the content recorded in this news article does not constitute formal advice and we do not guarantee the accuracy of any information provided at the time of reading. It is always recommended that you seek professional advice before acting on any of the news articles or information