So Why Opt to Tax - Interesting findings from HMRC
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17th June 2014
recently commissioned a report in order to understand why businesses
opt to tax commercial properties and the administrative burdens
relating to the
option to tax.
the main reason leading to a business opting to tax was to facilitate
recovery on costs relating to the property. What is more surprising is
many businesses do not in fact realise the value of opting to tax or
circumstances where doing so would lead to an increase in VAT recovery,
secure a VAT property purchase.
Often the need to opt to tax is identified
very late on in the process of selling a commercial property which can
lead to a deal stalling if the increased plus VAT purchase price means
funding falls short of the purchase price, or the increased level of
makes the property less desirable.
findings of the report make for interesting reading as it was
the sample of 833 businesses that the majority either held all opted to
properties, or all non opted properties, indicating that they preferred
avoid having a mixed portfolio for VAT purposes and the need to carry
partial exemption adjustments.
businesses (those making exempt supplies with little or no ability to
VAT) regularly encountered options to tax being made on properties they
intended to purchase or lease. This indicates that many businesses may
opportunity to secure a sale or a tenant by opting to tax without
this is in fact of benefit. Why add VAT on to a sales price and lose a
there is little input VAT at stake or if an agreement can be reached to
the purchase price to reflect potential VAT loss?
interesting point was that the majority of businesses that were asked
confidence in their understanding of the law relating to VAT land and
whereas their advisors felt that knowledge was not that great other
than in the
case of large businesses who may have in-house VAT expertise.
perhaps indicates that many small and medium size businesses require
help to ensure that they do not inadvertently create problems for
This is especially the case given that all parties agreed that the VAT
avoidance provisions intended to block planning schemes aimed at
recovery for businesses who were heavily exempt from VAT or had a high
non business activities were highly complex. This means that is very
businesses to fall foul of these rules without even realising that they
remains to be seen if HMRC will simplify the administrative system for
to tax, or revise the VAT anti avoidance provisions.
or your client is involved in either purchasing, selling or leasing a
it is always worth seeking professional VAT advice ideally before any
leases are finalised.
About the Author
VAT People are leading VAT and Customs Duty
consultants based in the
North West of England. We work with a wide range of businesses
throughout the UK as well as assisting our accountancy colleagues to
unravel the thorny VAT issues for their clients. We are one of the UK's
largest and most comprehensive sources of VAT and Customs advice, our
consultancy team having over 140
years of experience in VAT and Customs
gained in either HMRC or a Big 4 accountancy practice environment.
Call us on our VAT helpline 0800 077 4604 to discuss. All initial discussions are free with no-obligation.
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Article Published/Sorted/Amended on Scopulus 2014-07-16 09:50:27 in Tax Articles