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HM Revenue and Customs Brief 08/10


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Issued March 2010

VAT Land and Buildings - Changes to the operation of the option to tax and updated definitions of housing associations

This Revenue and Customs Brief announces three changes to Schedule 10 of the VAT Act 1994 which deals with the liability of supplies of land and buildings and one change to Group 5 to Schedule 8 of the VAT Act 1994 which deals with the zero-rate for construction services. These changes are:

  • simplification of the operation of the option to tax
  • simplification of the 6 month 'cooling-off' period to revoke an option to tax, and
  • changes to the definition of a housing association.

These amendments all come into effect on 1 April 2010.


Schedule 10 to the VAT Act 1994 deals primarily with the option to tax on supplies of land and buildings. Following a series of amendments to block aggressive tax avoidance schemes, this legislation had become increasingly complex and was identified by business as a key area for simplification.

Following consultation with business a re-written version of Schedule 10, in Tax Law Re-write style, was introduced on 1 June 2008. The revised version is easier to follow and employs a more logical layout and simplified language.

Simplification arising from the operation of the option to tax

Following the introduction of the new Schedule 10, HMRC has continued to discuss with business ways in which the legislation could be further improved and simplified. In the course of our discussions additional concerns were also identified relating to certain aspects of the option to tax rules. As a result, a small number of minor amendments are being made which are intended to both simplify the legislation and facilitate business needs. A further change is also necessary as a result of the Housing and Regeneration Act 2008 and the redefining of the term 'relevant housing association'.

In making the changes set out below it was necessary to balance the business need for flexibility with the requirement that revenue should be protected.

The changes that have been made are as follows:

  • occupation of minor parts of buildings (no more than 10 per cent of the total area) by persons that have provided finance for developments is now disregarded for the purposes of the option to tax anti-avoidance provision. A new sub-paragraph 15(3A) has been introduced into Schedule 10 and new tertiary legislation introduced, (see VAT Information Sheet 02/10 - Annex A).
  • the conditions for revoking an option to tax during the 'cooling-off' period have been amended. The requirement that land must not have been used has been removed (Schedule 10 paragraph 23(1)(b)). The additional conditions set down in tertiary legislation have also been amended, (see VAT Information Sheet 02/10 - Annex B).
  • the definition of 'relevant housing association' has been amended in Schedule 10 paragraph 10(3). The term 'registered social landlord' will be replaced from 1 April for England only with 'private provider of social housing' as defined by the Housing and Regeneration Act 2008. This consequential change ensures English housing associations continue to enjoy the same VAT reliefs as they do at present in common with housing associations in the rest of the UK. A similar change is also being made in Group 5 to Schedule 8 of the VAT Act 1994 where we are also taking the opportunity to update the reference for Scotland as well.

More detailed explanations and amended tertiary legislation relating to the first two bullet points above are contained in VAT Information Sheet 02/10.

How will the changes be effected?

All the changes to Schedule 10 and Group 5 to Schedule 8 are being made by separate Treasury Orders and will both be effective from 1 April 2010. The changes to tertiary legislation will also take effect from the same date.

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

Further Information

Further information can be obtained on our website or through the Helpline on Tel 0845 010 9000.

Information Sheet 02/10 provides guidance and further detail. It supersedes or complements existing guidance as appropriate. A revised Notice 742A Opting to tax land and buildings and new guidance will be available as soon as possible.

About the Author

Crown Copyright 2010.

A licence is needed 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 2010-03-16 18:20:17 in Tax Articles

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