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how far back can you register Option to tax?

Need to register for option to tax and register for VAT confused by 30 day limit

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Have to register a client for VAT and Option to Tax, not sure if i am confusing the issue and would appreaciate a reality check with a fresh pair of eyes.

Scenario

-Client purchases a building, land registry title is dated 20th August 2021, she paid the money to her solicitors (invoice dated 15th July 2021).

-There is no written decision made to take Option to Tax.

-Client comes to me yesterday wanting to opt to tax. I take it the effective date to opt to tax would be yesterday as thats the day she formally agreed to undertake the action.

1- Is the 9th of september 2021 the effective date i should put on the vat1614a and in doing so will she be able to claim her VAT back that she paid on the 15th of july?

2-does the date of VAT registration on the VAT 1 have to be the same date as the date of opting to tax (as she has paid some other costs etc in june in relation to the building and wants to claikm the VAT back if possible.

Replies (19)

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By RogueNation
10th Sep 2021 10:18

"There is no written decision made to take Option to Tax"

In the absence of the above, it is difficult to show that there was an intention to opt.

On that basis the date is the day the option is made.

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Replying to RogueNation:
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By Justin Bryant
10th Sep 2021 10:35

I don't think that's right. I always thought you could opt to tax in the bath even.

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Replying to Justin Bryant:
Psycho
By Wilson Philips
10th Sep 2021 10:35

You can. But if you want to persuade HMRC that the decision to opt was made earlier than the date on which the notice is given it would be wise to have some form of documentary evidence. Perhaps a note scrawled into the bar of soap.

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Replying to Wilson Philips:
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By Justin Bryant
10th Sep 2021 12:59

I hate to think what you'd have said if I'd have said you could do it sitting on the loo!

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Replying to RogueNation:
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By d500
10th Sep 2021 12:45

My confusion is: Is the (time limit) decision by HMRC to grant an option to tax related only to when to the person opts to tax and HMRC being notified within 30 days even if the property was actually purchased more than 30 days ago?

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Psycho
By Wilson Philips
10th Sep 2021 10:29

What is she doing with the property?

How much did she pay for the property?

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Replying to Wilson Philips:
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By More unearned luck
10th Sep 2021 11:02

A further question is: did she buy with VP or a setting tenant?

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Replying to More unearned luck:
Psycho
By Wilson Philips
10th Sep 2021 11:49

Indeed (it was in my mind when asking about use of the property but could have been more explicitly stated).

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Replying to Wilson Philips:
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By d500
10th Sep 2021 11:59

it was a derelict property formerly commercial use, client intends to convert to flats above a shop

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Replying to d500:
Psycho
By Wilson Philips
10th Sep 2021 12:14

Conversion to flats? Have a think about that.

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Replying to Wilson Philips:
VAT
By Jason Croke
10th Sep 2021 12:28

Well that changes almost everything!

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Replying to Jason Croke:
By ireallyshouldknowthisbut
10th Sep 2021 14:25

@Jason I don't know much about VAT on property .......... only enough to know you ALWAYS get a VAT specialist when its anything to do with new builds, conversions or commercial property. Less of a minefield, more of a swarm of suicide bombers with snipers all around.

That and VAT on anything edible.

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Replying to Jason Croke:
RLI
By lionofludesch
10th Sep 2021 14:32

Jason Croke wrote:

Well that changes almost everything!

[chuckle]

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Replying to d500:
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By More unearned luck
10th Sep 2021 18:28

Has your client bought a leasehold interest in the first and higher floors of a building or the entire building such that part of the asset she has acquired (the ground floor) will remain commercial throughout your client's period of ownership?

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VAT
By Jason Croke
10th Sep 2021 10:44

Have a read of section 9 of Notice 742A
https://www.gov.uk/guidance/opting-to-tax-land-and-buildings-notice-742a...

Maybe 9.2.5 is more relevant to the situation. Which then refers you to Notice 706 (partial exemption) and section 13 covers "payback" rules or you could consider a partial exemption calculation but that would see the input tax reclaimed at the time of the annual adjustment/next year?
https://www.gov.uk/guidance/partial-exemption-vat-notice-706#section13

The input tax incurred in July is theoretically recoverable, but will require more effort than had the option to tax been in place before acquisition.

To respond to your queries, yes, 9th September is the day the decision was made to opt.

The date of registration doesn't have to match the Option to Tax. In reality if you ask to be registered from say 01 July and you also use 01 July on the Option to Tax form, HMRC will issue the VAT number from 01st July but the Option to tax unit will write back to say they cannot accept an Option from 01 July as it is more than 30 days (from 01st July) and they'll ask you to specify another date within 30 days of the date you submitted the registration (ie, if submitted 10th September, you could back date to say 01st September as that is within 30 days of 10th September) or you can accept the date the VAT registration form was submitted (ie, 10th September) .

As others have posted, what was the value of the property? What is the intention - presumably to rent - but opting to tax is a 20 year commitment and so sometimes if the VAT is not significant, it can be easier to not opt, lose the VAT but have a property you can rent out without VAT, attracting a different mix of potential tenants, etc.

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Replying to Justin Bryant:
Psycho
By Wilson Philips
10th Sep 2021 15:39

Subsequent (and indeed initial) info from the OP renders that reference redundant.

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VAT
By Jason Croke
10th Sep 2021 15:05

Appreciate the OP's original question was asking about the timings of when to opt to tax, but others have pointed out a more pressing issue and it may be that the OP is not familiar, which is a great example of how this forum can help (to a degree).

An option to tax is automatically dis-applied where it involves residential property.

So if the client intends to opt to tax the property so that they can convert the property into apartments, the option to tax is not required (indeed, would be disapplied).

Whether the client can register and reclaim VAT depends entirely upon what they intend to do - if convert then sell (zero rated), they can register for VAT, if they intend to convert then rent (exempt), then they can't register for VAT.

Lots to go wrong here, depends on the value of the property, value of the conversion works (Capital Goods Scheme), etc. Also, the cost of conversion works can be at the reduced rate of VAT (5%) assuming all the conditions for that are met.

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By VATs-enough
10th Sep 2021 17:27

And this is exactly why a VAT advisor asks 100 questions before giving you an answer.

Annoys the heck out of everyone, but my stock response "Devil's in the detail..."

OTT on resi conversion...love it

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