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Confusion Option to Tax

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Confusion whither the property is opted to tax or not.

purchased a OTT public house 15 yrs ago, claimed the vat back. Ran the business, then leased the business and charged the tenant vat on the rent on the advise of the solicitor who made the lease.

I'm now trying to sell the property. On checking with the OTT unit, turns out the Property is not opted to tax. I have wrongly charged vat on the rent for 10 years, do I have to repay the vat claimed from when I purchased the property after I sell the property.

Replies (20)

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By Paul Crowley
20th Dec 2021 13:39

I say it every time
VAT and property costs us all so much in PII claims

Good news is that the Solicitor gave the advice, not an accountant

But surely the accountant wouuld have asked the question when submitting accounts?
Unless this is DIY tax returns

Wait out for Les or Jason
I would pass this issue to an expert

Thanks (1)
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By Wanderer
20th Dec 2021 13:36

Sounds to me like you made the decsion to Opt to tax.
But failed to notify HMRC:-
https://www.gov.uk/guidance/opting-to-tax-land-and-buildings-notice-742a...

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VAT
By Jason Croke
20th Dec 2021 13:39

Why would you take tax advice from a solicitor?

Presumably you bought the property 15 years ago and reclaimed VAT at that time, so whether capital goods scheme applies or not, the original input tax in property purchase is safe.

From when you started renting the property to someone else and charging VAT, what VAT have you reclaimed in relation to the property? (ie, any extensions or new roof?). Also, is it a repairing lease for the tenant or as landlord are you repairing the property?

In theory, no option to tax notified to HMRC, so disposal of property is exempt, as for repaying input tax, how much are we talking about over the last 4 years?

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Replying to Jason Croke:
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By Wanderer
20th Dec 2021 13:42

Jason, would they also have to repay their tenant the VAT charged?

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Replying to Wanderer:
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By Paul Crowley
20th Dec 2021 13:56

Good question
As I understand it anything charged as VAT is payable as VAT
I think the real issue is that of input tax claimed by the trader (as in client) and any discovery that the input paid and reclaimed by the tenant is just a bit slippery

Even worse is what to do on the next rent demand
Hopefully it is not the tenant buying

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Replying to Paul Crowley:
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By Wanderer
20th Dec 2021 14:07

Paul Crowley wrote:

As I understand it anything charged as VAT is payable as VAT

Noted, but don't sometimes HMRC adopt the position 'VAT wrongly charged isn't claimable as input VAT'?

Para 7.4 here infers repayment to the charger, less input VAT claimed:-
https://www.gov.uk/guidance/how-to-correct-vat-errors-and-make-adjustmen...

If they do that then surely HMRC will chase the tenant for repayment of their input VAT (If they claimed it)?

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Replying to Paul Crowley:
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By Ma168168
20th Dec 2021 14:54

Paul Crowley wrote:

Good question
As I understand it anything charged as VAT is payable as VAT
I think the real issue is that of input tax claimed by the trader (as in client) and any discovery that the input paid and reclaimed by the tenant is just a bit slippery

Even worse is what to do on the next rent demand
Hopefully it is not the tenant buying


The tenants have gone into liquidation
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Replying to Ma168168:
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By Hugo Fair
20th Dec 2021 15:56

Doesn't mean the liquidator (if becomes aware of the situation) may not want to unpick the history?

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Replying to Ma168168:
RLI
By lionofludesch
20th Dec 2021 18:40

Ma168168 wrote:

The tenants have gone into liquidation

Not surprised with all that extra VAT they've been paying.

Imho, the correct procedure would normally be to refund the VAT to the tenant, with a credit note, and reclaim the VAT incorrectly charged from HMRC.

The tenant no longer trading, however, is a bit of a complication. Were they registered ? I'm guessing yes. In the circumstances, I'd probably do nothing. Or ask HMRC what they "advise". This money should travel in a circle but the insolvency might well block it.

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Replying to Jason Croke:
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By Ma168168
20th Dec 2021 14:50

Thank you do your reply

It’s a full repair lease so I have not claimed any vat for the repair of the property. The quarter vat return has been the same rent pulse vat for the last ten years.
The buyer has agreed a price + vat , I’m I safe to proceed without the vat or do I still need to charge vat.

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Replying to Ma168168:
chips_at_mattersey
By Les Howard
20th Dec 2021 15:04

What will the purchaser use the property for? Depending on the answer you might opt now, to remove doubt in relation to the sale - assuming the purchaser can recover.
You then have to decide, as a separate matter, whether to up-pick the previous four years or apply for a belated notification.

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By More unearned luck
20th Dec 2021 14:39

Shouldn't the amount of VAT reclaimed and charged reflect the non-optionable landlord's accommodation?

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By ireallyshouldknowthisbut
20th Dec 2021 16:44

@OP As an accountant in general practice for over 20 years, I can tell you one thing,

GET HELP NOW FROM A VAT SPECIALIST. NOW.

VAT is far too complex a tax to try and wing it. There is no logic, only rules.

I wouldn't touch this situation with a very long pole as the chances of my getting it wrong would be high, potentially costing the client thousands of pounds. I would be straight to a specialist, and I know a fair amount about VAT and property.

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Replying to ireallyshouldknowthisbut:
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By Ma168168
20th Dec 2021 17:41

Any recommendations. My last accountant was so bad, that’s why I’ve been doing the returns myself.

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Replying to Ma168168:
By Duggimon
21st Dec 2021 09:21

You might get a recommendation on here if you let us know where you are, someone local is often preferable.

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Replying to Ma168168:
paddle steamer
By DJKL
21st Dec 2021 09:30

If he is still there Nigel Smith at Tait Walker (North East firm) has proved useful to us in the past re property transactions and vat.

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Replying to ireallyshouldknowthisbut:
By SteveHa
21st Dec 2021 10:20

Ermm, isn't VAT the "simple" tax?

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Replying to SteveHa:
RLI
By lionofludesch
21st Dec 2021 10:32

SteveHa wrote:

Ermm, isn't VAT the "simple" tax?

Yes - we have Tony Barber's word for it.

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Replying to lionofludesch:
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By Hugo Fair
21st Dec 2021 13:15

Now there's a name to shake the cobwebs in my brain - Wikipedia says:

"Barber was appointed as Chancellor of the Exchequer in 1970, and oversaw a major liberalisation of the banking system, replaced purchase tax and Selective Employment Tax with Value Added Tax, and also relaxed exchange controls.

During his term the economy suffered due to stagflation and industrial unrest, including a miners strike which led to the Three-Day Week.

In 1972 he delivered a budget which was designed to return the Conservatives to power in an election expected in 1974 or 1975. This budget led to a period known as "The Barber Boom". The measures in the budget led to high inflation and wage demands from public sector workers. He was forced to introduce anti-inflation measures, along with a Price Commission and a Pay Board.

After the Conservatives lost the first election in 1974, he did not stand in the second election of that year. Barber became Chairman of Standard Chartered Bank until 1987"

Now I wonder who was George Osborne's role model?

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By RFL H
21st Dec 2021 10:04

I would recommend Jason or Les - both have responded here.

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