Starting a new business? Get 40% off our accountancy services for 3 months! 😀

x

Renting out or selling commercial property or land is usually automatically exempt from VAT, but you may be able to waive this exemption. Rather like voluntarily registering for VAT, the ‘option to tax’ is mainly a question of tax efficiency.

What is an option to tax?

The option to tax simply means you can decide to waive the VAT exemption which normally applies to commercial property or land. By doing so, you will be able to:

Should I waive the VAT exemption?

The short answer is that ‘it depends’. A VAT registered business charges VAT on any taxable sales it makes to customers, and reclaims the VAT it pays on purchases. If the amount of VAT charged is higher than the amount of VAT paid on purchases, you’ll pay the difference to HMRC. If you paid more VAT than you collected, you can reclaim the difference.
 

 

 
The key point here, is that you can’t reclaim VAT on an exempt property, and you can’t charge VAT selling or letting it.

Opting to tax by waiving the VAT exemption would mean you could start doing both of those things, which might be beneficial. For instance, if the VAT you pay on construction costs or repairs is regularly more than the VAT that you would charge, you would be able to start reclaiming the VAT.

But, like all business decisions, there are two sides to the story when considering the option to tax.

How long does an option to tax last?

Waiving the VAT exemption is a long-term decision – a 20 year one, in fact. Once you go down the road of option to tax, it’s in place for 20 years. It’s also worth noting that the option applies to the land itself. So, if you buy land that has a building on it, and knock it down to put something else in its place, it’s still taxable as long as it’s still for commercial usage.

You may be able to revoke your option to tax within 6 months of the date it becomes effective, but you’ll need permission from HMRC.
 

Comprehensive VAT return service

From only £25.00 per month

Learn more

Who are your customers?

If you waive the VAT exemption on the property, you’ll charge VAT when selling or letting. If your customer isn’t registered for VAT, they won’t be able to reclaim what they pay, which means their costs increase. Even if they are VAT registered, the effect on their cash flow might be an issue.

How do I option to tax?

You’ll need to keep a written record of your option to tax, including details of the property or land it affects. You must apply to HMRC using a VAT1614a form within 30 days of your decision.

 
Learn more about our VAT return services. Talk to one of the team on 020 3355 4047, or get an instant quote online.

About The Author

Dean Salmon

I'm an AAT and ACA qualified Chartered Accountant with over 13 years experience working with businesses, contractors and sole traders. I also love watching live music, and quizzes! Learn more about Dean.

More posts by this author
guest
0 Comments
Inline Feedbacks
View all comments

Read more posts...

Umbrella Companies for Self-Employed Contractors

When you set up in business as a contractor you might either work as a sole trader or as a limited company….

Read More

Get Ready for Small Business Saturday UK 2022

Small Business Saturday started in the US in 2010, on the first Saturday following Thanksgiving. It aims to encourage shoppers to consider…

Read More

Architects and Tax

Architecture is a highly diverse sector when it comes to tax. It’s partly down to the type of businesses that carry out…

Read More
Back to Blog...

Confirm Transactions

The number of monthly transactions you have entered based on your turnover seem high. A transaction is one bookkeeping entry such as a sale, purchase, payment or receipt. Are you sure this is correct?

Yes, submit my quote
No, let me change it

Please contact our sales team if you’re unsure

VAT Returns

It is unlikely you will need this service, unless you are voluntarily registered for VAT.

Are you sure this is correct?

Yes, the business is VAT registered
No, let me change it

Call us on 020 3355 4047 if you’re not sure.

Bookkeeping

You only need this service if you want us to complete the bookkeeping on your behalf.

Would you prefer to complete your own bookkeeping?

Yes
No

Call us on 020 3355 4047 if you’re not sure.