TOGC – timing of purchaser’s Option to Tax

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This recent Tribunal case followed the QBD case of Higher Education Statistics Agency Limited [2000] STC 332, known as HESA. This case considered a fairly common scenario where:

  • The Vendor of a commercial property has Opted to Tax;
  • The property has a sitting tenant;
  • The Purchaser expects that the TOGC rules will apply, since the tenant will remain in situ; and
  • The property is sold at auction.

The problem arises because the Purchaser is required to Opt to Tax before the relevant tax point. This provision is in Art 5, para (2A) of the VAT Special Provisions Order (SI 1995/1268). When the Purchaser makes a successful bid at auction he invariably makes a deposit payment. This creates the tax point. Unless he has already Opted to Tax, the TOGC conditions are not met. This leaves the Vendor liable to output tax on the selling price. Of course, the Purchaser then recovers the same amount of input tax.

The Tribunal, of course, was required to follow the HESA decision; see para 94.

I have come across this situation a number of times. It is an easy target for HMRC. It leads to large assessments (over £900k in this case), plus penalties, even though there is no overall loss to the revenue.

About Les Howard


Hi, I am a VAT Consultant, working mainly with charities. I am based in Cambridgeshire

I have over 20 years experience in VAT, and am currently also a part-time member of the Tax Tribunals.


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