Option to tax ― deciding whether to opt

Produced by Tolley

The following Value Added Tax guidance note Produced by Tolley provides comprehensive and up to date tax information covering:

  • Option to tax ― deciding whether to opt
  • Advantages of opting to tax land and buildings
  • Input tax recovery
  • Preventing capital goods scheme adjustments arising
  • Ensuring a TOGC covers land and buildings
  • Disadvantages of opting to tax land and buildings
  • Status of the customer
  • Contractual provisions
  • Future plans or market for supplies
  • Risk of spread
  • More...

Option to tax ― deciding whether to opt

This guidance note discusses some of the key considerations that a person should take into account when deciding whether to opt to tax land and buildings.

For an overview of the option to tax more broadly, see the Option to tax ― overview guidance note.

For in-depth commentary on the legislation and case law around the option to tax, see De Voil Indirect Tax Service V4.115C.

Advantages of opting to tax land and buildings

Input tax recovery

The main advantage of opting to tax property is securing VAT recovery. Generally, VAT which is incurred on costs used to make exempt supplies of land and buildings is irrecoverable. By opting to tax, supplies of the property become standard-rated and VAT on costs used to make the supplies becomes recoverable, subject to the normal input tax recovery rules. For input tax recovery generally, see the What is input tax? guidance note.

To assess how worthwhile it is to opt to tax, a business needs to consider how much input tax is at stake (ie how much input tax can be recovered if the business opts compared with how much would be recovered if it does not opt to tax). The option to tax is likely to be more desirable where large amounts of input tax have been suffered.

Circumstances in which large amounts of input tax may be incurred may include (for example) VAT being charged on the initial purchase of a property, or VAT being incurred on significant works done

Popular documents