The next step

Form VAT1614A

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What if you’ve lost your option to tax election?

Charging VAT on rent

The starting point is that most rental income is exempt from VAT as a land-related supply. However, an option to tax election you make on a building means that your future rental income or selling proceeds will be subject to 20% VAT.

Your election must be notified to HMRC by emailing the completed FormVAT1614A (see The next step ) to: optiontotaxnationalunit@hmrc.gov.uk; you must include the property address in the subject line and attach the form with the email. You will receive an automated acknowledgement from HMRC to confirm it has been received. The notification to HMRC must be made within 30 days of your decision being taken.

Tip. The reason for opting a property is because you want to claim input tax on the costs you incur, e.g. building improvement works, maintenance costs, etc. If there is no input tax benefit, then don’t opt.

Trap. The election does not apply to your rental income or selling proceeds from residential property, which are still exempt from VAT as an option to tax override.

Evidence for tenants and buyers

Your tenants or buyers are correct to ask for proof that you notified HMRC of your option to tax election if you intend to charge them VAT on their rental supplies or the proceeds of the property sale. This is because they can only claim input tax on their own returns if VAT has been correctly charged in the first place. In other words, the supplies are exempt from VAT as far as they are concerned until you prove otherwise.

Trap. Some of your land and building supplies are subject to VAT even if an option to tax election is not in place. For example, income earned from storage is standard-rated by statute, also from letting someone park a vehicle on your land.

What if you cannot prove you opted?

If you cannot give your tenant a copy of your option to tax letter or acknowledgement from HMRC, and your advisors cannot find any paperwork, it is likely that you didn’t notify HMRC of your decision, so you must consider making a belated notification to get the paperwork in order.

Date 1: When did you first charge VAT on your rental income? Check your past sales invoices and rental agreements.

Date 2: When did you first claim input tax on property costs, which was probably when you purchased the building and were charged VAT by the seller?

The earlier of Date 1 and Date 2 is the date when you decided to opt to tax the building but probably failed to notify HMRC of your decision. This is fine - as long as you decided to opt, you can now submit FormVAT1614A to HMRC (see The next step ), making a belated notification back to this original date. HMRC’s guidance in VAT Notice 742A confirms this is acceptable.

Tip. You must give HMRC evidence of your decision being made when you submit the belated FormVAT1614A , e.g. copies of sales invoice or correspondence with advisors etc.

The next step: for a link to Form VAT1614A