For owners of commercial property, recent changes to HMRC rules could affect your VAT option to tax. B P Collins’ property team advises.

The effect of an option to tax is that VAT is payable on rent and/or the purchase price of a commercial property. Previously, if an option to tax was exercised, you could apply to HMRC for an acknowledgement of this. This would be official evidence for the tenant or buyer that VAT is chargeable. You could also ask HMRC for a copy of an option to tax, for example if you lost your record of it.

However, from 1 February 2023, HMRC will not provide an acknowledgement of an option to tax nor confirm if there is a record of an option to tax. The commercial property owner must now keep up-to-date records and know whether they have an option to tax, with supporting evidence.

There are two exceptions where HMRC will inform you if there is a record:

  1. The date of the option is more than six years ago (or likely to be);
  2. A Law of Property Act receiver or insolvency practitioner has been appointed to administer the property.

If you are a commercial property owner, it is advisable to keep accurate records of an option to tax. Without these, it could cause significant problems, for example, with a sale as the buyer could refuse to pay VAT on the purchase price without valid evidence of the option to tax.

If you are applying for an option to tax from 1 February 2023, HMRC have said the following will amount to evidence of the option to tax:

  1. HMRC’s automatic receipt; and
  2. Evidence that you sent the option to HMRC.

It is therefore advisable to send applications via email, ensuring you include the application, covering email and any supporting documents, and save your sent email along with HMRC’s response.

B P Collins LLP will be able to advise you on options to tax and how the new HMRC rules will affect your transactions. Please contact our property department if you would like further information at or call 01753 889995.

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