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Article Index
Budget 2009 Commentary
Temporary return of first year allowances
Another year to carry losses back
Tipping the cashflow scales
Carbon-based company cars
Further obligations for internal company accountants
Preferring to be part of a group?
A simple option for VAT on property
2010 - a big year for football and VAT
Connected companies' loans
Developments on the green horizon
Foreign denominated losses
Gambling with the rules
Rates and limits
HMRC becomes more powerful

Budget 2009 commentary courtesy of Grant ThorntonBudget Comment 2009

A simple option for VAT on property

Businesses can transform certain, otherwise VAT exempt land and property transactions into taxable transactions by 'opting to tax'. This allows VAT incurred to be recovered, thereby reducing the businesses' costs.

However, businesses that have previously made exempt supplies from land and buildings that they now wish to opt to tax, have to obtain permission from HM Revenue & Customs (HMRC) to do so - unless they meet one of four automatic permission conditions. If the business falls outside one of the automatic conditions it can often cause a delay in a transaction while HMRC's permission is obtained.

A new automatic permission condition will be introduced from 1 May 2009. The change is intended to simplify the process and allow more taxpayers to opt to tax without seeking prior permission. The intention is that new legislation and associated guidance for the automatic permission condition will be issued shortly.

Often when a business makes an option to tax it will also want to recover VAT already incurred. In order to recover any of the tax it may be necessary to reach an agreement with HMRC. HMRC currently operates two informal concessions for that purpose. One applies when a taxpayer registers for VAT as a result of opting to tax and as has incurred VAT outside of the statutory period for recovery. The other concession applies where the VAT was incurred by a VAT registered trader in an earlier VAT year; in which case the input tax cannot strictly be recovered. However, in both cases, HMRC is normally willing to agree that a proportion of the tax can be recovered.

These two informal concessions will be reviewed up to 30 April 2010, at which time they will be withdrawn, but with part of them being incorporated into the legislation.

This announcement is consistent with recent HMRC moves to either withdraw tax concessions or incorporate them into the legislation. In the light of these proposals, businesses with land or property interests that are not currently subject to the option to tax should review their status without delay in case the withdrawal of the concessions precludes the future recovery of input tax.