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Where Taxpayers and Advisers Meet

option to tax

rav147
Posts:110
Joined:Wed Aug 06, 2008 3:30 pm
option to tax

Postby rav147 » Mon Nov 18, 2019 10:58 pm

hi all, not sure if this question belongs here or in the property taxation section.

I am looking to find out the implications in the following scenario:

Company buys a property rental business (land and buildings) which had been opted to tax by the previous owner.

Seller and buyer agree that TOGC applies.

Buyer registers for VAT approx 5 weeks after the purchase date (date of entry) - application was sent around the date of entry - it took 5 weeks to get the reg certificate

Option to tax was sent to HMRC but apparently not recieved so HMRC asked for it to be sent again and was sent approx 40 days after date of entry

HMRC now say that TOGC rules were not met - something about 30 days limit to apply after "relevant date" (assume date of entry is the relevant date)

all the other TOGC rules were met

1: if HMRC are correct - what are the implications for the buyer?

2: can anything be done about the "not received" option to tax form?

Thanks

jerome.lane
Posts:237
Joined:Mon Aug 12, 2019 8:41 am
Location:Sandhurst, Berkshire
Contact:

Re: option to tax

Postby jerome.lane » Tue Nov 19, 2019 11:44 am

Hi, can you confirm that this was a commercial property business? OTT are made on specific land or buildings so was this just one plot?
Jerome Lane
Tax Adviser
Telephone: 07943 005902

les35
Posts:635
Joined:Wed Aug 06, 2008 3:09 pm

Re: option to tax

Postby les35 » Tue Nov 19, 2019 2:15 pm

You can apply for a belated notification of the option to tax. See Notice 742A, para 4.2.1 - https://www.gov.uk/guidance/opting-to-tax-land-and-buildings-notice-742a#sec4
or you may have to seek a review. You have the legal and guidance issues to address, and also HMRC's stubborn-ness and unhelpfulness to contend with!

rav147
Posts:110
Joined:Wed Aug 06, 2008 3:30 pm

Re: option to tax

Postby rav147 » Tue Nov 19, 2019 2:17 pm

hi, this was a commercial purchase of land and buildings. the buildings are old and leased out to various businesses

rav147
Posts:110
Joined:Wed Aug 06, 2008 3:30 pm

Re: option to tax

Postby rav147 » Tue Nov 19, 2019 2:21 pm

Hi, the belated OTTis an option we are going through at the moment with HMRC
but the question is what is the implication of the TOGC rules not being met?

the seller did not charge VAT
the buyer did not pay VAT

so does the buyer now have to pay VAT on the purchase price because TOGC rules were not met?

If yes, can the VAT on purchase price be claimed back if successfull belated OTT is made?

don't mind too much about paying the VAT as long as it can be claimed back, However we would not want to OTT and pay VAT if VAT could NOT be claimed back

Thanks

les35
Posts:635
Joined:Wed Aug 06, 2008 3:09 pm

Re: option to tax

Postby les35 » Tue Nov 19, 2019 5:08 pm

If the TOGC conditions are not met, the Vendor is required to charge VAT (and increased SDLT?).
The purchaser should be able to recover it; but again that will be subject to HMRC unhelpfulness.

rav147
Posts:110
Joined:Wed Aug 06, 2008 3:30 pm

Re: option to tax

Postby rav147 » Tue Nov 19, 2019 5:42 pm

If the TOGC conditions are not met, the Vendor is required to charge VAT (and increased SDLT?).
The purchaser should be able to recover it; but again that will be subject to HMRC unhelpfulness.
Thanks for your reply.

The transaction has already settled, the seller has their money and the buyer has the land and buildings.

The buyer is carrying on the business of leasing commercial pemises for various commercial tennants.

no vat was charged by the seller and no vat was paid by the buyer. The buyer is VAT registered. The OTT (belated) is underway but not finalised.

So what happens now?

jerome.lane
Posts:237
Joined:Mon Aug 12, 2019 8:41 am
Location:Sandhurst, Berkshire
Contact:

Re: option to tax

Postby jerome.lane » Wed Nov 20, 2019 10:50 am

I assume the buyer hasn't continued the same business as the previous owner which is why the TOGC rules are disputed by HMRC?

Where VAT free TOGC treatment is incorrectly applied to a taxable supply, the seller will be assessed by HMRC with penalties and interest. The seller is likely to attempt to obtain the VAT payment from the buyer. The buyer should check whether they can recover the VAT.

The buyer would also have underpaid SDLT.
Jerome Lane
Tax Adviser
Telephone: 07943 005902

les35
Posts:635
Joined:Wed Aug 06, 2008 3:09 pm

Re: option to tax

Postby les35 » Wed Nov 20, 2019 11:10 am

Although the transaction is completed, as you say, VAT Law will always take precedence over contract law. This means HMRC can re-visit the transaction and charge VAT and penalties to the Vendor. Whether he can re-charge that to the purchaser depends on the wording of the contract.
(HMRC's approach is not always predictable! The outcome might be more or less lenient.)

rav147
Posts:110
Joined:Wed Aug 06, 2008 3:30 pm

Re: option to tax

Postby rav147 » Wed Nov 20, 2019 11:42 am

Although the transaction is completed, as you say, VAT Law will always take precedence over contract law. This means HMRC can re-visit the transaction and charge VAT and penalties to the Vendor. Whether he can re-charge that to the purchaser depends on the wording of the contract.
(HMRC's approach is not always predictable! The outcome might be more or less lenient.)
How could the vendor know what would happen in future? Ie paperwork not filed in time


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