Andrew Needham looks at the circumstances where the option to tax can be disapplied, and the potential pitfalls.
The sale and rental of a commercial property are normally exempt from VAT (under VATA 1994, Sch 9, Group 1). The option to tax (under VATA 1994, Sch 10) allows a business to choose to charge VAT on the sale or rental of commercial property. Any option to tax does not affect a residential building or residential part of a building.
An initial six-month cooling-off period is allowed, during which a business can withdraw the option, subject to the written consent of HMRC. After that, the option is irrevocable for 20 years. There are, however, other circumstances in which an option to tax can be disapplied.
Disapplication of the option to tax
When a purchaser wants to buy an opted commercial
