HM Revenue and Customs Brief 24/08
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Issued 22 April 2008
VAT: Land and buildings – new Schedule 10 of the VAT Act 1994 including
changes to the option to tax
This Brief announces the introduction of a new Schedule 10 to the VAT Act
1994 that becomes effective from the 1 June 2008 following the announcement in
Budget Note 79 at Budget 2008.
Schedule 10 to the VAT Act 1994 deals primarily with the option to tax
supplies of land and buildings and was introduced following the European Court’s
ruling that the UK had to tax the construction of non-domestic buildings.
Following a series of amendments needed to block various avoidance schemes; this
legislation has become increasingly more complex to follow. The new Schedule 10
has been rewritten in the Tax Law rewrite style, which greatly improves the
layout of the legislation as well as simplifying the language.
In addition, in 1995 changes were made to Schedule 10 that allowed revocation
of an option to tax 20 years after it had been made. This means the first
options eligible for revocation will take place in 2009. This new legislation
therefore also includes the rules for revocation and also some changes necessary
for its smooth operation. Finally, in line with suggestions received from
business, the new legislation includes several changes designed to facilitate
During its development, this new legislation has been subject to two public
consultations in 2004 and 2005 and legislation was introduced in the Finance Act
2006 to enable the existing Schedule 10 to be replaced by statutory instrument.
A further, limited consultation on the initial drafts of the proposed
legislation took place in August 2007 with all those who replied to the earlier
What is being published?
In addition to a Treasury Order being laid containing the new Schedule 10, we
are also publishing an Information Sheet 03/08 which includes guidance for the
changes, together with the tertiary legislation (elements of the guidance which
have the force of law). This document also includes destination and derivation
tables to help business navigate its way around the changes.
An update to Public Notice 742A Opting to tax land and buildings, to include
the material in the Information Sheet, will be issued within two months.
The following areas have changed or are new:
- new rules for relevant associates
- introduction of certificates to disapply an option to tax for buildings to
be converted into dwellings and land supplied to housing associations
- introduction of disapplication of the option to tax for intermediaries
supplying buildings to be converted into dwellings etc
- revised definition of occupation, including a new exclusion for automatic
- introduction of a new way to opt to tax (a real estate election) which
does not require individual notifications of each option (see other changes
- extension and changes to the cooling off period
- automatic revocation of an option to tax after six years if no interest
has been held in a property during that time
- introduction of rules governing the revocation of an option to tax after
- provision that in future, an option to tax applies to both the land and
buildings on the same site - with a special transitional rule for existing
- a new ability to exclude a new building and land within its curtilage from
an option to tax
- new appeal rights
- repeal of legislation concerning the developer's self supply charge and
developmental tenancies (Item 1(b) of Group 1 of Schedule 9 to the VAT Act
1994) and also co-owners of land (section 51A of the VAT Act 1994)
Explanation of these changes
All the Schedule 10 changes are fully explained in Information Sheet 03/08
which includes guidance on each change together with tertiary legislation where
appropriate. New forms which will have the force of law will be produced before
1June, to support and allow the smooth operation of the new rules.
At present, a small number of taxpayers, typically large taxpayers, have what
has become known as a global option to tax. This option to tax is effectively an
option on the whole of the UK, and is typically expressed as follows:
'I opt to tax the whole of the UK' or more commonly 'I opt to tax all the
land I currently own and all that I acquire in the future'.
While there is no problem with retaining these global options, HM Revenue &
Customs (HMRC) has in some cases, by concession, allowed the cooling off period
to apply to each property as it is acquired. Under the normal rules, the cooling
off period can only apply to the option to tax itself and so should expire three
months after the option was made (this will be extended to six months from 1
June 2008). Because of the introduction of the new real estate election, this
concession will be withdrawn with effect from 31 July 2009. This should allow
sufficient time for those with a global option to decide whether to retain it
without a cooling-off period in future, or to convert their global option into a
new real estate election.
Further information can be obtained on HMRC's website
www.hmrc.gov.uk or through the National
Advice Service (NAS) on Tel 0845 010 9000.
Information Sheet 03/08 providing guidance and further detail is available
and will supersede or compliment existing guidance as appropriate. A new Notice
742A Opting to tax land and buildings and new guidance will be available as soon
About the Author
© Crown Copyright 2008.
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Article Published/Sorted/Amended on Scopulus 2008-04-25 17:40:48 in Tax Articles