Last month HMRC issued an updated version of VAT Notice 742A: Opting to Tax Land and Buildings here http://tinyurl.com/ckzyhk. It contains HMRC’s guidance about the law relating to the option to tax, as well as advice on various practical issues, such as submitting documentation and related issues such as VAT registration, transfers of going concerns and time of supply.
It is the one public notice which I retain in hard copy as I regularly use it.
The new edition of VAT Notice 742A contains all of the changes since the notice was originally published in 2002. The original version was written with the input of various property industry sector bodies, accountants, the VAT profession and other professional groups to ensure that it covered all of the relevant technical and practical points. It was also important that the notice was accessible for the non-VAT specialist. And I think it’s one of the best VAT notices in the whole HMRC library, a very good source for businesses and advisors alike.
It is a challenging read, particularly if you’re not a VAT specialist as so many of the subjects pre-suppose a good working level of VAT knowledge and use a lot of terminology. But it is one of the more clearly written VAT notices and they have made a good attempt at explaining the main principles in everyday language.
But why is there no list of contents or index to the notice?
I find navigating round the notice with no list of contents or index is a real pain – my copy is littered with yellow stickies and highlighted sections to help me save time finding my way round. I don’t know how anyone who isn’t familiar with the subject is supposed to find their way around this notice, which deals with one of the most complex and difficult areas of VAT law.
So I thought it would help to put a list of contents together, so here it is and feel free to copy it!
Section 1: Introduction (p2)
Section 2: The Scope of an Option to Tax (p4)
Section 3: Supplies not affected by an Option to Tax (p8)
Section 4: How to Opt to Tax (p16)
Section 5: Permission to Opt to Tax (p19)
Section 6: Option to Tax and VAT Registration (p24)
Section 7: Responsibility for Option to Tax (p29)
Section 8: Revoking an Option to Tax (p31)
Section 9: Input Tax (p39)
Section 10: Time of Supply (Tax Point) (p43)
Section 11: Transfer of a business as a going concern (p44)
Section 12: Deregistration (p49)
Section 13: Anti-Avoidance Measures (p50)
Section 14: Real Estate Elections (REE) (p60)
Annex 1: Forms and Certificates – online (p71)
Annex 2: Flowcharts designed to assist with the application – online (p71)
Notes to the notice (p71)
I’ve printed a copy of the contents and put it at the front of my hard copy, it definately makes navigating round a bit easier.
Just take a minute and read the list of contents….
But actually I think that having the list of contents is helpful for another very important reason. Just look at the list for a minute or two – no, really LOOK at it. Read it properly, line by line, slowly, preferably out loud.
Now I find that list pretty scary. I’ve been doing VAT since 1981 and have been advising clients on property issues all that time. And even with all of that experience, I look at that list of contents and realise that there is a lot of information to consider. Most of the section headings seem harmless enough but most of the sections are several pages long and contain detailed guidance on relatively obscure parts of the law.
The point is that the contents page reminds me that this is a difficult subject and we’re all learning as we go along. It certainly stops me from becoming blase about this most complex of VAT subjects.
A lot of information – where do I start?
So it’s a long and detailed notice and I know this will put a lot of people off using the notice, though most of you will only have to deal with a few of the sections during your professional life. But it’s still worth spending a bit of time familiarising yourself with the contents of the notice, even if you don’t get any further than reading the first few pages of the notice itself. It helps to be aware that there are several complex areas and anti-avoidance issues, dealt with in the latter sections of the notice, just so that you know when you’re out of your depth.
However, if you have a straightforward property transaction then you probably only need to refer to a couple of sections. If your client is opting to tax a commercial property where neither party is partly exempt, the parties are not connected and the vendor/lessee hasn’t used the property to make exempt supplies, you’d probably only need to refer to sections 1 and 4 of the notice. And as with all technical information, once you’ve got used to this “basic” stuff, you’ll find it easier to cope with more complex situations in the future.
So when should I be asking for advice from a VAT consultant?
This is one of those questions that differs for everyone, depending on the nature of the transaction and how confident you are about the subject.
But there are 3 very important factors that I think you should take into account every time you or your client is involved in a property transaction:
- Once the deal is completed it’s too late to change the VAT treatment. You need to consider the VAT issues at the very start and in some cases, well before even letters of intent are signed or contracts exchanged.
- Property transactions normally involve a lot of money and the cost of getting it wrong could be significant, never mind messy and costly to sort out later.
- Finally, property transactions can affect other aspects of the business’s VAT profile, particularly in terms of partial exemption and past, present and future VAT recovery, so the property transaction shouldn’t be considered in isolation.
Of course it’s up to you to decide when you need to take advice from myself or any other VAT consultant. Sometimes accountants just need to double check that they’ve covered everything and I’m more than happy to be at the end of the telephone for a quick consult in such cases. And you accountants are usually very good at knowing when something is out of the ordinary or if a transaction is particularly important to a client so that it’s worth investing in formal advice.
Business owners have a limited amount of money to spend on specialist advice, such as VAT. I would suggest that a very good investment for these limited resources is when the business is in the course of planning large value or unusual property transactions.
Either way, I’d recommend that you spend a few minutes having a look at VAT Notice 742A sometime soon so that you’re a bit better prepared for helping your clients with option to tax issues in the future.
Marie