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Option to Tax for VAT – Don’t Lose It! | Legal Update

Posted on 1 February 2023

Looking For Option To Tax


“My solicitor’s asked if I did an Option to Tax…did I do one?”

Picture the scene.  You’re selling or leasing your commercial property.  Everything’s going well – contracts are nearly agreed.  You’re solicitor has nagged you again about whether you have opted to tax your property.  You think so, but you can’t remember.  Does it matter?  You’ve always charged VAT, right?  Maybe I can ask HMRC – surely they will help me out?

Well, from today, 1st February 2023, not any more for some.  Read on to find out more, and sign up to my Newsletter to stay up to date. 

What is an Option to Tax?

Depending on how long you have been dealing with commercial property, you may well know it as the VAT Election.  Or the Election to Waive the Exemption for VAT if you prefer.  Either way, it is the act of deciding that you will subject a commercial property to VAT.  Unless it was built in the last 3 years, a commercial property is exempt from VAT.  In simple terms, if you Opt to Tax, you will make transactions associated with it subject to VAT.  You can then charge VAT on the sale price or the rent, and can recover VAT on some costs associated.  Speak to your accountant or tax advisor if you are looking to understand whether or not to do this.  Give me a call on 01384 872069 if you are unsure, and I can point you towards the right specialist.  

Why do I need to know if I did an Option to Tax?

If you are selling or leasing, the buyer or tenant will wish to know whether they are going to be charged VAT on the purchase price or rent.  If they are well advised, they will insist on seeing evidence of your entitlement to do this.  Otherwise they may be unable to recover “VAT” spent if challenged by HMRC, and you could be subject to penalties if VAT is incorrectly charged.  The evidence they will want to see is the Option to Tax.  Or, more precisely, the notification of it to HMRC via form VAT 1614A or the acknowledgement that HMRC have always issued to confirm receipt of the notification and that they are happy with it.  They used to check it over, to ensure that the Option to Tax is valid, and challenge it if not.  They would issue an acknowledgement letter – good evidence of a valid Option to Tax.

On a sale or lease your solicitor will be asking for a copy of the Option to Tax, so that they can provide this to the buyer or tenant’s solicitor.  If this cannot be found, it can cause all sorts of delays whilst it is looked for.  You used to be able to write to HMRC if you couldn’t find it, and although this would take months, if they had a record of it they would tell you.  If no definitive position is reached, then the contract will require lots of lengthy (and expensive) tax covenants and warranties.  Much easier if you can just brandish the piece of paper and move on.

So what is changing?

HMRC have published the following Changes in processing option to tax forms – GOV.UK (www.gov.uk) which come into force today, 1st February 2023:

  • HMRC haven’t actually been issuing acknowledgement letters since September 2022.  They have been issuing a receipt letter, to confirm receipt, but not confirming any checks have been made on the validity of the Option to Tax.
  • From today, HMRC will not even issue an acknowledgement letter.  If you send the Option in via email, then you will receive an automated response, but not if you send in via post.  Postal applications will receive no response at all.
  • HMRC are not going to answer enquiries about whether an Option to Tax is in place, if it was likely filed in the last 6 years, unless you are an insolvency practitioner.

Why is that important?

Well, HMRC are placing the onus on you to make sure your records are correct.  They aren’t going to acknowledge any Options to Tax, unless you send them via email.  HMRC aren’t going to help you out if you have lost a recent Option to Tax (the rationale being that you should be keeping records for 6 years anyway).  They aren’t going to carry out any checks on Options to Tax.  This means proper tax advice becomes really important.  The onus will be on you to ensure that any Option to tax is valid – HMRC aren’t going to confirm that (until they expensively challenge it further down the line).  It also means good record keeping becomes critical.

It looks a fairly subtle change, but could have expensive implications if you don’t keep get it right.

I want to Opt to Tax…What should I do?

If you are thinking of Opting to Tax, professional advice is strongly advised.  As HMRC are no longer operating any checks, it is down to you to ensure that your Option to Tax is valid.  Seek professional advice from your accountant or tax advisor.  If you don’t have one, give me a call on 01384 872069 and I can point you in the right direction.  You need a good accountant or tax advisor, or here at Nexa Law we have specialist tax solicitors who can also assist.

It is now more important than ever that you keep good records.  HMRC aren’t going to bail you out.  You should:

  • Keep a copy of your Option to Tax notification.
  • Ensure that any Option to Tax notification is submitted to HMRC via a valid electronic format.  An email to optiontotaxnationalunit@hmrc.gov.uk should result in an auto-reply.  Save that auto-reply somewhere safe.   

I’d keep these electronically somewhere.  I’d make sure your accountants have copies.  If you have a “deeds packet” sitting with your solicitor, your bank, or in your loft, print off both items and store them there.  Much easier to deal with now, than have to hunt around in 10 years’ time.

The Future…

The implications of this will creep up on us over time.  Commercial Property lawyers like myself will find that a relatively simple question (are you charging VAT?) becomes a complex one if clients don’t have adequate records.  Believing you can charge VAT is one thing, and proving it to the satisfaction of a buyer or tenant is another.  Buyers and tenants may start to question whether a VAT Option to Tax is valid.  A well advised buyer may need professional advice to confirm this is the case.  No more HMRC acknowledgement letters to swiftly confirm that issue. 

In the absence of clear evidence, we may need those warranties and indemnities in the contract/lease.  Those will need a tax lawyer to draft them – more cost and expense.  You can imagine HMRC looking at that 6 year time limit in the not too distant future, and pushing it out even further.  Don’t make life hard for yourself, keep your records safe. 

Contact Me

As always, if you have any queries, then do get in touch for a no-obligation, free, quotation via enquiries@mcleanlegal.co.uk or on 01384 872069 or via my Free Enquiry Form or Live Chat.  I carry out all work through Nexa Law Limited, which is authorised and regulated by the SRA.

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Thanks for reading my above article, and I look forward to seeing you on the next blog post!  If you want to stay up to date, sign up to my Newsletter.

Finally, the above article is for general information purposes only.  I am not providing legal advice in the above and it may or may not be appropriate for your specific circumstances.  If you require legal advice, please do get in touch and I will be delighted to assist.



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John McLean is a Partner with Nexa Law, which is authorised and regulated by the Solicitors Regulation Authority (Licence Number 633024). All work is carried out through Nexa Law.

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