Changes to options to tax imminent

Posted: 27/01/2023

Earlier this month, HMRC announced that from 1 February 2023 they will no longer be issuing letters acknowledging receipt of option to tax (OTT) notifications. Registered providers will need to prepare for this change.

Until now, the procedure for notifying HMRC of an OTT required the taxpayer to notify HMRC of the decision to opt to tax in writing, either by post or by email. Upon receipt, HMRC would issue a letter acknowledging receipt of the option. Of course, the option would still take legal effect irrespective of acknowledgement from HMRC, and taxpayers were required to begin charging VAT upon notification of the OTT.

On taxable transactions, buyers would routinely request a copy of the acknowledgement as evidence that VAT could be properly charged in relation to a property or transaction. While it has previously been possible to request a new copy of an acknowledgment – if the original had been misplaced, for example – registered providers should note that this will generally no longer be possible.

While HMRC will no longer be issuing formal letters of acknowledgement, those who notify by email will still receive an automated email response. Emails should go to optiontotaxnationalunit@hmrc.gov.uk. It will therefore be preferable to notify by email for administrative purposes, but as before, valid OTT notifications will continue to take legal effect without acknowledgment.

As has always been best practice, it is recommended that registered providers keep a copy of the option, whether notification is provided by post or email, as evidence, and as a record of the date it was provided. If it is only possible for notification to be sent by post, the option should be sent by recorded delivery so that evidence that the OTT was sent can be retained. If sent by email, HMRC’s automated response should be filed in the registered provider’s records, along with the option.

As mentioned above, from 1 February HMRC will no longer respond to requests concerning the existence of an OTT on a particular property, save for two exceptions:

• The effective opted date is likely to be over six years ago.
• The person making the request is an insolvency practitioner or an appointed receiver under the Law of Property Act.

As ever, responsibility for ensuring that the OTT is valid, and that the notification is correct, remains with the opter.

Finally, while the requirement is that VAT records, including OTTs, are kept for six years, it is advised that OTT information be kept indefinitely.

The key practice points are:

• Ensure a copy of the option is kept on file.
• Send the option to HMRC by email wherever possible so you receive an automated acknowledgement.
• Keep the automated acknowledgement on file.
• If the option is sent by post, send it by recorded delivery so that evidence that the OTT was sent can be retained.
• Generally, it will not be possible to request a new copy of an acknowledgment if the original has been misplaced.

This article was co-written with Charlotte Horlock, junior paralegal in the social housing team.

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