VAT - revoking the option to tax

August saw the introduction of the revocation of the option to tax (waiver of exemption).  A revocation is available to anyone who has been subject to the election for 20 years, or more.  From what I can vaguely recall of 1989, there was little immediate enthusiasm shown for waiving  the exemption when the facility was then introduced and it might well, therefore, take months, if not years, before revocation becomes a topic requiring regular attention.

There is no bar on revocation for those who satisfy the prescribed tests, as follows:

• No input adjustments are required under the capital goods scheme.

• There must have been no under-valued supplies, e.g., peppercorn rents, made in the opted building during the preceding ten years.

• There must have been no excessive prepayments in relation to the opted property. Excessive prepayments are the advance payment of expenses covering more than 12 months after the option is revoked.

Where the tests are not satisifed, revocation is still possible only after consent has been obtained from HMRC.

Revocation is made in two stages, as with the original waiver. The trader makes the decision to revoke, and that decision is then notified to HMRC on form VAT1614J.

The merits, or otherwise, of revocation will have to be considered in relation to each elected property.  If revoked, a new waiver of exemption can subsequently be made but, subject to the usual rules allowing for a near immediate withdrawal, the elector will then have another 20 years before that new waiver can be revoked.

The current (June 2008) version of HMRC Notice, 742a, dealing with the the option to tax land and buildings, is here.