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Housebuilder tip of the month: Opting to tax for VAT

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By Mary Waters


Published 28 June 2022


HMRC’s processing times for option to tax notifications has recently increased leading to some transactions progressing before a copy of an option to tax acknowledgement letter has been received from HMRC.

From 30 May 2022, HMRC have commenced a six week trial in respect of its acknowledgments of the option to tax. The purpose behind the trial is to speed up HMRC’s review process which should lead to fewer delays.

Previously, form VAT1614A was filed with HMRC advising of an intention to opt to tax a property for VAT purposes. HMRC then acknowledged the notification and verified it.

As an acknowledgement is not required for an option to tax to be effective, during the trial HMRC will continue to acknowledge receipt of form VAT1614A but will not check and confirm if the option is valid. This will impact upon sales, acquisitions and landlord and tenant matters where depending on the history of the property a further level of due diligence may need to be undertaken to establish the validity of an option to tax especially where exempt supplies pre- dated the option.

Whilst HMRC have stated that this is a trial, if it is successful it is likely to become permanent.