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Option to tax not required?

Option to tax not required?

a limited company registered for vat making 100% taxable supplies is buying a commercial property and paying vat on it. As company is using this building 100% for its trading purposes, i guess no notification of option to tax is required in order to claim input vat and company can claim input vat on its normal quarterly vat return? Please comment.


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By DMGbus
16th May 2012 08:52

The use determines VAT recoverability

As the building is to be used for a fully taxable purpose (occupation by a fully taxable owner for a fully taxable activity) that owner can recover the input tax in full at the time of acquisition.

The only time an option to tax is necessary is where a building is acquired for renting out, the reason being that renting out is by default exempt from VAT and this prejudices VAT recovery - in most cases that I see building owners choose to opt to tax in such a circumstance so as to make the use of the building taxable so as to qualudy for VAT recovery.

So to sum no no need to opt to tax - unless choose to rent out the building.

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By riksti
16th May 2012 08:59

Capital Goods Scheme

Just to add to the above reply - you may have to look into capital goods scheme rules if the property is more than £250,000.

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16th May 2012 16:29

Intention to sell

Thank you for both of you. 


What if the business uses the property for carrying on its normal trade (making taxable supplies) and then in few months time sell the building, would they be charging VAT on their sale or would it affect their "initial input vat recovery" if they have not opted to tax?

On another note what if a business buys a property with an intention to sell? Do they have to opt to tax or they can still claim VAT as standard by filing their normal (trading) VAT return?

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By riksti
17th May 2012 08:36

bought for resale

If the property is bought with an intention to sell then, in my mind, it's bought in order to make exempt supplies. This means you can't claim back VAT on the purchase of the building because it is relating to an exempt part of the trade. Therefore, if they want to claim back VAT they need to opt to tax and therefore charge VAT on the sale.

Not sure about the first one but common sense would say it may not qualify as trading premises if (almost) immediately resold.


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17th May 2012 08:56

I believe

If your intention is to make taxable use and you 'later' decide to sell, you can recover the VAT in full (see above re CGS).  If you were putting it to taxable use to pass time until you sold it, the recovery may be less certain.

Just to eleaborte on the CGS point raised above, if the property exceeds £250,000 when bought, and you recover the VAT, if you sell it as an exempt (i.e. not Opted to Tax) supply within 10 years, you will have to return some of the input VAT claimed (generally 1/10 of it for every year left of the 10 years).


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By gmurd
07th Feb 2013 01:20

VAT on rental of property/services

If a VAT registered company rents land with property on it, but does not pay VAT on rent or insurances, can that company sub-let or rent out parts of the building to micro businesses without charging VAT?  Therefore making the rental payments for the micro businesses whom are not VAT registered, more affordable.

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