Option to Tax oversight

[MANHAR]

Hello

I would really appreciate some guidance / confirmation that my course of action is the best way forward.

A client operates a business (retail shop) and also has another commercial unit on which he has an option to tax for VAT. Hence he charges VAT on the rent received on the commercial unit and it is declared on the VAT Return together with his retail shop trade.

A few years back he bought run down premises which he planned to renovate and open as a restaurant. He was charged VAT on the premises by the vendor at the time. The client claimed this VAT back as his intention was to open a trade on which he would be declaring output VAT - but he did not opt to tax this particular plot.
To cut a long story short the restaurant venture did not proceed due to planning objections / costs etc. Then he considered converting into retail units at which point registering to opt to tax was discussed but not done until planning permission could be confirmed . However, that plan also fell through and nothing was done for a couple of years.

Then unexpectedly someone came along and wanted to rent the plot and use it to sell caravans from. It was on a month by month basis to check the viability so no formal lease agreed.

The client charged VAT on this rent and declared/paid it over to HMRC along with his other business. He did not appreciate that the Option to Tax he originally had only covered the first commercial unit he operated and this required a separate application. He has been charging Output Tax and paying it over to HMRC for around 9 months now.

How best to proceed please - any thoughts would be greatly appreciated.

Thank you.
Manhar

[Trevor S]

You may want to read this section in HMRC's internal manuals and the pages that follow:
https://www.gov.uk/hmrc-internal-manuals/vat-land-and-property/vatlp22400

Essentially there are two stages. The taxpayer must decide to opt to tax, then they must notify HMRC of their decision. The decision cannot be backdated, and normally notification must be made within 30 days of the decision. However HMRC do have the discretion to consider and accept late notification. Page VATLP22430 details the factors that HMRC should consider when deciding whether to accept a late notification. From your description, it sounds like your client might be able to meet the second bullet point in the section for acceptance.

[MANHAR]

Thank you Trevor for your reply.

I will check out the web links in detail. I thought it may be a late notification but needed to have a second opinion.

Thank you once again.

Manhar

[Trevor S]

No problem, hope that your client is successful!

Trevor