VAT – option to tax clarification
HMRC have recently issued a clarification relating to VAT and the option to tax. This clarification follows a House of Lords decision from last year which went against HMRC. The guidance is aimed at taxpayers whose situation is similar to that in the case considered by the House of Lords.
The case concerned whether a College was ‘in occupation’ of a college library or not. The issue ultimately determined whether the College could opt to tax the building or not. HMRC were of the view that the option to tax should be disapplied following the anti-avoidance rules contained in Schedule 10, VATA 1994. HMRC’s view was that physical presence alone was the correct test whilst the court found that this was not correct and gave a wider view.
The court’s ruling ultimately meant that the option to tax stood and VAT incurred on the rebuilding and refurbishment of the library would be recoverable.
Other businesses that are affected by the specifics of this judgment can now make claims to HMRC. Any claims must take account of the output tax implications from the time when the option to tax was disapplied.