Commercial properties which are more than three years old will not have VAT attached to their sale or rent unless the owner or leaseholder has opted to apply it. This is called the “option to tax”. There are three key questions to ask about your own commercial property:
• have you ever made an option to tax on this property?
• if you did where is the evidence? This would be a copy of form VAT 1614 and acknowledgment from HMRC; and
• if the option to tax was made more than 20 years ago, is it now appropriate to revoke that election?
All these questions will become urgent if you wish to sell the property as the buyer’s legal team will ask for evidence that VAT is correctly charged on the sale. Some businesses cannot recover VAT, so they would prefer to buy or lease a building without VAT.
If you believe that an option to tax is in place but there is no evidence, you could write to HMRC asking for a copy of the election but do not hold your breath. HMRC will take weeks to reply and if the election was made many years ago they may no longer have the paperwork. If you have never let the property and VAT was not charged on the original acquisition, it is probably safe to assume that an option to tax has never been made.
It is a common misunderstanding that once a property is the subject of an option to tax it remains an “opted property” when sold. This is not the case. Each person with an interest in the property can make an independent decision whether to opt to tax or not.