Value Added Tax

Option to tax ― overview

Produced by Tolley
  • 23 Mar 2022 10:43

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

  • Option to tax ― overview
  • What is the option to tax?
  • Key issues
  • Related reading

Option to tax ― overview

This guidance note provides an overview of the option to tax or election to waive exemption in relation to the supply of land and property.

For in-depth commentary on the option to tax, see De Voil Indirect Tax Service V4.114.

What is the option to tax?

The option to tax is a choice (or election) by a business to waive the VAT exemption on the supply of certain land and buildings. Supplies of land and buildings which are covered by the option to tax are therefore standard-rated rather than exempt. There are potential advantages and disadvantages to this waiving of exemption and each case has to be considered on its merits. A key advantage is that the option to tax may entitle a business to recover additional input tax. If a decision is made to opt to tax land and buildings then that decision needs to be notified to HMRC and sometimes HMRC’s permission must also be sought before the option can be applied.

HMRC’s published guidance on the option to tax can be found primarily in Notice 742A and the following internal manuals:

  1. VATLP22000

  2. VATLP23000

  3. VATLP24000

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