Temporary rule changes for the VAT treatment of commercial property come to an end


Temporary rule changes for the VAT treatment of commercial property come to an end

This page was last updated on August 2, 2021

During the pandemic, the Government made temporary changes to the rules for the notification of an option to tax land and buildings. This easement related to the VAT treatment of commercial property. The timeframe for the changes has now ended.

Updated 2 August 2021


If someone owns or acquires a commercial property that is more than 3 years old, and they decide they want to rent it out to tenants, the rental income is exempt from VAT.  This means that the rent is not subject to VAT, but it also means that the owner of the property cannot recover VAT incurred on costs associated with owning the property (such as legal fees, repairs, maintenance, refurbishments and so on).

It is possible, however, to waive the exemption by making what is known as an option to tax (OTT for short).  Any such OTT must be notified to HMRC and the normal timescale for sending in a notification is 30 days.

There are strict rules about when you can make an OTT but, once you have decided that it is a good idea, that 30 day clock starts.

extension to the option to tax timescale COMES TO A CLOSE

Social distancing and “stay at home” policies in response to COVID-19 made some of the rules for notifying HMRC of a decision to opt to tax land and buildings challenging to comply with. To help businesses continue to meet their obligations, HMRC temporarily changed the rules on how options to tax are notified.

Normally, HMRC must be notified within 30 days of the decision to opt. For decisions to opt land or buildings made between 15 February 2020 and 31 July 2021 they temporarily extended the notification period from 30 days to 90 daysThe July date had been extended from an earlier end date of 30 June 2021.

On 1 August 2021 the change to the time limit to notify HMRC of an option to tax during coronavirus (COVID-19) ended.  From this point onwards, businesses notifying HMRC of a decision to opt to tax land and buildings must do so within 30 days by either:

Electronic signature permitted

Another easement measure HMRC introduced in this regard related to the traditional requirement that an OTT be made on a paper form bearing a wet signature.

As a result of the pandemic, HMRC announced that those who have made a decision to opt to tax land and buildings would be allowed to email the 1614A form digitally with an electronic signature to optiontotaxnationalunit@hmrc.gov.uk.  This change has now been made permanent but comes with specific conditions depending on whether a business or their agent is notifying an option. Full details of the changes can be found here.

For more information

For more details, please talk with your usual Shipleys contact or one of our specialist VAT team – email them at vat@shipleys.com 

Specific advice should be obtained before taking action, or refraining from taking action, in relation to this summary, if you would like advice or further information, please speak to your usual Shipleys contact.

Copyright © Shipleys LLP 2021

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