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HM Revenue and Customs Brief 51/09

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Issued 13 August 2009

VAT - Option to tax land and buildings - correction to previously printed material

This Revenue & Customs Brief ('R&C Brief'), announces a correction to the tertiary law as was published in VAT Information sheet 12/09 and Notice 742A – Opting to tax land and buildings (June 2008 edition). In both cases Condition 2, 'the 20 year condition' of Box G was incorrectly reproduced. VAT Information Sheet 12/09 and R&C Brief 44/09 have been withdrawn and are being replaced with VAT Information sheet 14/09 and this R&C Brief. A description of the changes made to Schedule 10 of the VAT Act 1994 which came into effect on 1 August 2009 can be found in the attached Annex, see below.

Background

On 1 June 2008, Schedule 10 of the VAT Act 1994 was replaced and at the same time, new tertiary legislation was introduced which was subsequently published in Notice 742A – Opting to tax land and buildings, (June 2008).

The new tertiary legislation in Box G of this notice, (paragraph 8.3.2), sets out the rules for revoking an option to tax without requiring the prior permission of the Commissioners. While the online version of Notice 742A contains the correct wording in Box G, the wording in the printed version is incorrect. The correct wording for condition 2, 'the 20 year condition', in Box G is:

Box G
2 The 20 year condition
The taxpayer or a relevant associate connected to the taxpayer held a relevant interest in the building or land which is:
• after the time from which the option has effect; and
• more than 20 years before the option is revoked.
 

The effect of the incorrect version of 'the 20 year condition' would be to limit the ability of some businesses to revoke their option to tax without requiring the prior permission of the Commissioners.

Businesses are asked to use the version of Condition 2 above and as shown in the new corrected Information Sheet 14/09 when seeking automatic permission to revoke an option to tax after 20 years.

Notice 742A Opting to tax land and buildings will be reprinted in due course.

Further information

Further information can be obtained on HMRC’s website or through the HM Revenue & Customs VAT and Excise Helpline on Tel 0845 010 9000 or +44 292 050 1261 for international enquiries.

Annex

The changes to Schedule 10 of the VAT Act 1994 are as follows:

  • minor changes to the operation of the option to tax
  • changes to the connected persons rules

They came into effect on 1 August 2009 although some parts of the connected persons changes come into effect on 15 August 2009.

Background

Schedule 10 to the VAT Act 1994 deals primarily with the option to tax on land and buildings. Following a series of amendments necessary to block aggressive tax avoidance schemes, this legislation became increasingly more complex and was identified by business as a key area for simplification.
Schedule 10 was replaced on 1 June 2008 following extensive consultation. This new legislation was re-written in the 'Tax Law re-write' style, which greatly improved the layout of the legislation as well as simplifying the language. The legislation also introduced guidance on how to revoke an option to tax after 20 years, a facility that became available to taxpayers on 1 August 2009.

Minor changes arising from the operation of the option to tax

Following the introduction of the new Schedule 10, some unforeseen consequences were identified during HM Revenue & Customs' (HMRC) on-going discussions with business. As a result business and HMRC identified a number of minor amendments that were necessary to ensure that business is able to benefit as intended from the changes made as well as protect the revenue from future avoidance risks.

The changes that have been made include:

  • Extension of the period for notification of the exclusion of a building from the effects of an option to tax to 30 days or such longer period as HMRC may allow.
  • Denying automatic revocation under the six year rule, or on making a Real Estate Election ('REE'), where further supplies (for example, overages) will or may arise after revocation.
  • Ensuring that all members of a VAT group are considered when options are revoked.
  • Changes to the rules on REEs so that if there is more than one tax point for a supply, the option is made on the date of the first supply.
  • Amending the capital item condition of the 20 year automatic revocation rules so that a taxpayer who meets all the other conditions can still have automatic revocation if the sum of all the remaining Capital Goods Scheme adjustments is £10,000 or less.
  • Amending the rules on granting permission to revoke an option to tax after 20 years so as to enable the time of revocation to be tied to an event. This would allow revocation to be linked to say, the sale of a property.

Further details are contained in VAT Information Sheet 14/09

Changes to the connected persons rules

Several banks have become 'connected' for the purposes of the s839 of the Income Taxes Act 1988 as a result of the Government taking shares in them. By being connected, certain anti-avoidance rules are triggered which has meant that unintended tax implications may arise on certain transactions. This amendment treats taxpayers as unconnected where their only connection (within the meaning of s839 of the Income Taxes Act 1988) is because they are controlled by the Crown, a minister of the Crown, a Government Department or a Northern Ireland Department. These changes affect:

  • the Option to Tax (paragraph 34 to Schedule 10 of the VAT Act)
  • supplies of land for indeterminable consideration (Reg 84 of the VAT Regulations 1995)
  • supplies of construction services (Reg 93 of the VAT Regulations 1995)
  • continuous supplies of services ((Reg 94 of the VAT Regulations 1995)

How will the changes be effected?

The changes to Schedule 10 were made by Treasury Order and became effective from 1 August 2009. The three changes to the VAT Regulations become effective from 15 August 2009.

A revised Public Notice 742A – Opting to tax land and buildings will be issued in due course.


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© Crown Copyright 2009.

A licence is need to reproduce this article and has been republished for educational / informational purposes only. Article reproduced by permission of HM Revenue & Customs under the terms of a Click-Use Licence. Tax briefs are updated regularly and may be out of date at time of reading.



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Article Published/Sorted/Amended on Scopulus 2009-08-26 15:56:50 in Tax Articles

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