Further changes from HMRC; this time in the world of VAT and the Option to Tax with Changes being implemented on 1 February 2023

If you believe or know you have Opted to Tax properties in the past but don’t have a copy of the acknowledgement letter to hand, we would strongly recommend that an OTT confirmation request is lodged with HMRC before the beginning of February, when the new policy comes into effect. Please contact us if you would like to know more information.

What’s an Option to Tax?

The Option to Tax (OTT) is an election to waive the exempt from VAT status of supplies of land and buildings. So, in simple terms, when an individual buys a house, no VAT is charged even though the purchase price will likely be over the VAT threshold – this is because it’s exempt.

Opting to Tax land or buildings turns it into a standard-rated supply, and also means you will normally be able to recover any VAT you incur in making those supplies.

So, what is changing?

Until 31 August 2022, upon receipt of an OTT notification via form 1614A, HMRC would issue an acknowledgement letter. This has been a useful document that provides particular comfort to solicitors when dealing with the sale or purchase of land and property. From 1 September 2022 to 31 January 2023 the acknowledgement letter has been replaced by a receipt letter.

After the changeover date, these letters will no longer be sent at all. Instead, HMRC will only provide an electronic confirmation for an OTT application that is emailed directly to their dedicated Option to Tax email address. The automatic email response should be retained and used as the confirmation date of notifying HMRC of the OTT.

So, if you submit a signed 1614A by post or any other means, don’t expect to receive any kind of acknowledgement after 1 February 2023.

Any other changes?

Yes – from the same date, HMRC will also stop processing requests to confirm the existence of a previously submitted OTT, except under the following limited circumstances:

• The effective opted date is likely to be over 6 years ago; or
• The request is made by a Land and Property Act receiver or an insolvency practitioner, to administer the property in question

If either of those conditions are met there’s more criteria to also comply with in order to obtain the confirmation.

I may have made an OTT but I’m not sure…

While you may not need it now, if you decide to sell your land or property in the future and cannot provide any documentation that it has been opted, this may cause avoidable delays.

If you think you may be impacted by these changes, get in touch with us at the earliest opportunity.