Temporary changes to rules for the VAT treatment of commercial property

In response to the current Covid-19 situation, the Government has extended temporary changes to the rules for the notification of an option to tax land and buildings. This easement relates to the VAT treatment of commercial property.

Updated 5 July 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.

An extension to the option to tax timescale

Social distancing and “stay at home” policies in response to COVID-19 have 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 temporarilty 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 have temporarily extended the notification period from 30 days to 90 days.  The July date has been extended from an earlier end date of 30 June 2021.

Electronic signature permitted

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

HMRC have now announced that those who have made a decision to opt to tax land and buildings will temporarily be allowed to email the 1614A form digitally with an electronic signature to optiontotaxnationalunit@hmrc.gov.uk.

When doing so though, you must provide supplementary evidence to prove that the signatory has the correct authority to act on behalf of the business.

If an agent is submitting the 1614A form electronically on your behalf, they must also provide additional evidence that proves that authority has been granted to the agent by yourself or your business to use this electronic signature.

Full details of the temporary 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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