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HM Revenue and Customs Brief 44/09


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Issued 27 July 2009

VAT – Changes to the operation of the option to tax on supplies of land and buildings and changes to the operation of the 'connected persons' rules

This Revenue & Customs Brief announces a series of changes to Schedule 10 of the VAT Act 1994 as follows:

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

These amendments come into effect on 1 August 2009 although some parts of the connected person’s changes do not come into effect until 15 August 2009.


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 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, a facility which is to become available to taxpayers from 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 have identified a number of minor amendments that are 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:

  • The period for notification of the exclusion from the effects of an option to tax has been increased 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 12/09

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 (para 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?

All the changes to Schedule 10 are being made by Treasury Order and will be effective from 1 August. The three changes to the VAT Regulations become effective from 15 August.

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 HMRC’s website or through the National Advice Service (NAS) on Tel 0845 010 9000.

Information Sheet 12/09 providing guidance and further detail is available and will supersede or compliment 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 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 2009-07-30 10:55:11 in Tax Articles

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