VAT - Option to tax
The measure
Businesses can make an option to tax real estate to convert the income from it being VAT exempt to being subject to VAT. Where the business has already made exempt supplies it currently needs to have the permission of HMRC before exercising this option. In some cases businesses can avail themselves of an 'automatic permission' provided they meet various conditions. HMRC will change the conditions so that the automatic permission will have broader application and also remove some informal concessions that had facilitated fairer VAT recovery in these circumstances.
Who will be affected?
Businesses considering making an option to tax over real estate.
When?
The change to the 'automatic permission' conditions will have effect from 1 May 2009. The removal of the informal concessions will have effect from 1 May 2010.
The change to the 'automatic permission' conditions should allow more taxpayers to opt to tax without seeking HMRC's permission and should therefore be welcomed. Details have not yet been published but the removal of informal concessions that facilitate fairer VAT recovery will be of concern if the legislative imperfections that made them necessary are not also remedied.
