Requesting permission to opt to tax

Produced by Tolley
Requesting permission to opt to tax

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

  • Requesting permission to opt to tax
  • When can automatic permission be granted?
  • Condition 1
  • Condition 2
  • Condition 3
  • Condition 4
  • Granting permission
  • What happens if the business fails to request permission?

The purpose of this guidance note is to outline the main principles that have an impact on a situation in which a business is required to obtain permission to opt to tax land and buildings.

Note that HMRC has made some temporary changes to notifying an option to tax during the COVID-19 (coronavirus) outbreak (notably extending the deadline for notification from 30 to 90 days). These changes aren’t covered in this guidance note; but for details, see the Coronavirus (COVID-19) and VAT - further VAT consequences guidance note.

A business cannot simply notify HMRC that it intends to opt to tax a property if it has made exempt supplies, or intends to make exempt supplies, of the land and buildings in the ten years prior to opting to tax the land and buildings. Unless the business meets the conditions under which HMRC can grant automatic permission to opt to tax land and buildings, it will be necessary for the business to obtain permission to opt to tax.

When can automatic permission be granted?

If a business meets one of the four conditions outlined below it can obtain automatic permission to opt to tax from HMRC.

Condition 1

The business has a mixed use development, and the only exempt supplies that have been made relate to dwellings located on the development.

Condition 1 is easy to interpret and will be satisfied where previous exempt supplies of the property in a mixed development have been in relation to dwellings only.

Condition 2

The business has decided that it does not wish to recover VAT incurred on costs associated with the property before it has opted to tax.

The business must also meet the following additional conditions:

  1. the only exempt income received in respect of the property relates to rent and service charges, and the business has not received any premiums or other advance payments that will relate to any periods after the option to tax is in place

    Regular rent and service charges are ignored when

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