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Where Taxpayers and Advisers Meet

Confused - TOGC!

plastics77
Posts:4
Joined:Wed Aug 13, 2014 12:26 pm
Confused - TOGC!

Postby plastics77 » Mon Jun 21, 2021 1:25 am

Ok, so we ended up purchasing a commercial hotel room at guaranteed income for 5 years, several years back. We 'opted to tax'

We are now selling and are coming across stuff that we are not sure about (another reason why we shouldn't have strayed into this kind of investment in the first place). If TOGC criteria apply, we must not charge VAT (nor do we want to).

The purchasing company has applied for VAT registration and has been successful - it has a registration number, but the VAT certificate may take several weeks to arrive as the company is registered overseas. So I think OK on that front in terms of one of the criteria being met.

The other key one is the option to tax - the form has been signed and submitted by the purchaser, but confirmation of receipt by HMRC has not happened yet - they said it could take several weeks to receive this, and are keen to proceed with completion.

Our lawyer is then also saying, 'however if HMRC find TOGC criteria are not met, you will have to pay the VAT and recover it from the buyer. Their lawyer is saying, as long as you are using a cash accounting basis for VAT, in the event this happens, you would simply issue a VAT invoice to his client's company post-completion and would only have to account for the VAT to HMRC once the company had paid this invoice.
Is that correct?

Or are we liable first for the VAT if HMRC deem it not to be a TOGC and then have to claim back from purchaser - this is a large sum and could get costly, so is there any merit in waiting for this confirmation from HMRC that the purchaser's option to tax has been received - our lawyer is saying although HMRC do normally acknowledge receipt, they don't need to for the option to tax to take legal effect - but in another post, somebody mentioned a similar situation where HMRC said they hadn't received it, and the purchaser had to re-send after completion, and this was 40 days after the relevant date, which meant HMRC deemed it not to meet TOGC criteria!

Any wisdom would be gratefully received, our lawyer is kind of sitting on the fence..which is understandable but doesn't really fill us with great confidence

les35
Posts:613
Joined:Wed Aug 06, 2008 3:09 pm

Re: Confused - TOGC!

Postby les35 » Mon Jun 21, 2021 4:46 pm

The primary problem is that the HMRC units dealing with Option to Tax applications is very, very slow.
The sale contract will need to include suitable warranties. We have found that good VAT advice on both sides of the transaction can provide wording that is both safe and fair to both parties.

There is certainly a risk in completing before receiving HMRC confirmation of the purchaser's Option to Tax. Is it enough to see a copy of his notification to HMRC and proof of delivery? That is a matter of risk.

plastics77
Posts:4
Joined:Wed Aug 13, 2014 12:26 pm

Re: Confused - TOGC!

Postby plastics77 » Mon Jun 28, 2021 5:23 pm

Thanks for that - so we are close to completion
We have seen the option to tax application - the purchaser is buying a number of units - the option to tax application is for the first unit he purchased and transacted to completion a few weeks ago
I've asked that an option to tax application is submitted for my particular unit as the units are un-related in the sale, apart from the fact they exist in the same hotel building
The buyer's solicitor is not happy and says they will pull out - they don't need to submit another application because the HMRC acknowledgement (when it comes through) usually has wording to the effect of the option to tax is not restricted to this 'level in the building' and will apply to other levels in the building should the purchaser acquire interest in those.
Can building levels be interpreted as units - I know it is pedantic but also know HMRC's wording in these kind of things can be quite specific and don't want to be reassured incorrectly....

les35
Posts:613
Joined:Wed Aug 06, 2008 3:09 pm

Re: Confused - TOGC!

Postby les35 » Tue Jun 29, 2021 1:45 pm

An option to tax applies to the entire building. In practice, of course, it only applies to those parts of the building in which the opter has a legal interest. As you say, it then applies to any other parts if he acquires an interest.

If the units are in the same building, or are linked, then the option will apply to them too.

... which is why we always recommend advice on such matters!


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