HM Revenue and Customs Brief 51/09
Submit Articles Back to Articles
Issued 13 August 2009
VAT - Option to tax land and buildings - correction to previously printed
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Sheet 12/09 and R&C Brief 44/09 have been withdrawn and are being replaced with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
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
||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 can be obtained on HMRCs website or through the HM
Revenue & Customs VAT and Excise Helpline on Tel 0845 010 9000 or +44 292 050
1261 for international enquiries.
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.
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
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
- 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
- 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
- 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.
About the Author
© 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.
Follow us @Scopulus_News
Article Published/Sorted/Amended on Scopulus 2009-08-26 15:56:50 in Tax Articles