Changes to the processing of option to tax forms by HMRC

Following a recent consultation, HMRC have confirmed that with effect from 1 February 2023 they will no longer be issuing acknowledgement letters confirming that an option to tax notification has been submitted.

Historically, when an option to tax form (VAT 1614A) was submitted to HMRC, they would issue an acknowledgement letter confirming receipt. The acknowledgement letter would usually be one of the main documents that was requested by any buyer in any property transactions, or often by tenants when entering into any lease in respect of an opted property, since it had the address of the relevant property and was addressed to the person who had made the option.

In recent years, there has been some degree of inconsistency in HMRC’s processes with acknowledgement letters being issued in respect of some notifications and no acknowledgement letters being issued in respect of others. HMRC have therefore decided to move to an approach of simply not issuing acknowledgement letters in all cases.

Under the new approach, when an option to tax is notified to HMRC via the dedicated email address (optiontotaxnationalunit@hmrc.gov.uk) an automated email response will be sent. This will be the only correspondence received from HMRC, unless they require further information regarding the notification. Businesses should therefore retain a copy of the email submitting the notification to HMRC, along with this automated email receipt.

This is an important change that all property businesses and solicitors dealing in property transactions should be aware of because failure to be aware of this new stance by HMRC could result in significant delays to property transactions going forwards. In particular, businesses should be aware of the need to retain these automated email receipts from HMRC which are now the sole evidence of HMRC receiving the notification.

However, as these receipts do not refer to the property for which an option has been notified, nor to the person who has made the option, it will no longer be possible for a person to demonstrate they have notified an option to tax to HMRC. This has the potential to disrupt transactions if the parties to it, or their advisers, take a confrontational rather than cooperative approach.

In addition, HMRC have confirmed that they will also stop processing requests confirming the existence of an option to tax unless either the effective date of the option is likely to be over six years ago, or if the request is coming from an appointed Land and Property Act receiver or an Insolvency Practitioner to administer the property in question. Any request which does meet either of these two conditions must include the following details:

• Name of the Business/person who had opted to tax the property
• A VAT Registration Number (if applicable)
• The full address of the land/property in question, including postcode
• The effective date of the option to tax if known
• The date you first charged VAT on the opted land/property
  • The date the property was acquired and/or a loan was taken out by the opter on the relevant property

The risk here is that if an option to tax has been made within the last six years and the business did not receive an acknowledgement letter from HMRC, or does not have a copy of an automated email from HMRC, this could result in difficulties in determining the position for many property deals, leading to increased delays.

Should you have any queries regarding the above please do not hesitate to contact Stephen Patey or Phil Salmon in our VAT department.