How HMRC acknowledge an Option to Tax

How HMRC acknowledge an Option to Tax

Changes are being trialled to how HMRC acknowledge an Option to Tax (OTT). 

This is a six week trial being run by HMRC Option to Tax Unit that seems likely to affect how everyone handles commercial property transactions going forwards.

You may know that ordinarily where a party has opted to tax the purchaser’s solicitors insist on having HMRC’s confirmation that the option applies.  Whereas the VAT law makes no such provision for validity.  An OTT is effective simply as a result of someone deciding to opt and notifying HMRC of that decision.  Somehow over time this simple approach has been taken further so that lawyers have insisted on seeing the letter HMRC has been sending confirming that an OTT applies.  The letter has become a prerequisite before anyone will accept that an OTT is effective.

Why is this happening?

For some time now there have been huge delays in extracting anything from the OTT Unit.  This has caused a lot of headaches when trying to complete on a property sale before having the acknowledgement letter from HMRC.  It seems that as a result of bad press arising from their delays HMRC have decided to run a six-week trial as below and want news of this to be shared.

It seems we are going back to the old days where you only know an OTT notification was submitted but have nothing with any real content back from HMRC.  It then follows that parties to a sale subject to an OTT will have to be content with a simple HMRC acknowledgement of receipt and perhaps should insist on seeing a copy of the notification itself.  How else could you be sure the acknowledgement related to the property in question?

HMRC have said that:

“OTT Notification – Change to Process  

 From 30/05/2022, will begin a trial within Option to Tax.

 The aim of the trial is to speed up our review process by increasing internal efficiency, while maintaining our legislative and security obligations. We believe this will result in improvements to the customer and colleague journey, and fewer delays. 

 The trial will last for 6 weeks.

 “As is” process

Currently, when a customer notifies of an intention to Opt to Tax a property (through a VAT 1614A form), we acknowledge the notification and carry out an extensive series of checks on the notification itself.

 Section 4.2.4 of VAT Notice 742A states that HMRC ‘will normally acknowledge receipt of your notification, although this is not necessary for the option to tax to have legal effect’. 

 Process during the trial

HMRC will continue to acknowledge receipt of notification but will no longer acknowledge its validity – this is the responsibility of the opter themselves. 

 The option to tax acknowledgement letter issued by HMRC will become an acknowledgement of a receipt of the option to tax from the customer.

 What does this mean for the customers?

The VAT 1614A document will remain the same and customers will continue to use this document to notify us.

 The changes to our internal processes act only to better serve our customers, speeding up the option to tax process for them. The result will be a more efficient and sustainable level of service.”

The VAT rules surrounding land and property have always been some of the most complex that need very careful handling.  if you are ever in any doubts about the right answer, please get in touch.  It is usually pretty impossible to put things right after the event – which is why we always say ‘Sooner is always better’.

Posted in News, Property.