HM Revenue & Customs is changing the VAT Option to Tax system

From 1 February 2023, HM Revenue & Customs (HMRC) is changing the Option to Tax (OTT) system for VAT to make the processes involved more efficient, provide greater accuracy and simplify procedures.

The tax authority has claimed that the upcoming change will provide a better experience for taxpayers who use OTT to charge VAT on land.

VAT OTT – What is it?

As most Supplies of land and buildings are VAT exempt it means that no VAT is chargeable. As a result, the person or organisation making the supply is not able to cannot normally recover any of the VAT incurred on their own expenses.

However, OTT allows them to make a VAT charge on land and recover some of their costs.

How do the Changes Affect Current OTT Holders?

The most significant change is that notification of an option to tax will now only be issued in the form of an automated response email from HMRC, rather than as a physical receipt like previously.

This will be provided when an OTT notification is emailed to This must be retained and included within your VAT records, as it confirms the date at which HMRC was notified.

HMRC will respond if further information is required, but the responsibility for ensuring the OTT notification is valid remains with the taxpayer.

HMRC will also no longer process requests confirming the existence of an existing OTT, apart from two exceptions, when:

  • The effective opted date is over six years ago; or
  • If the request is made by a Land and Property Act receiver or insolvency practitioner administering relevant property.

Where these conditions are met, HMRC will provide:

  • Name of the business/person who had opted to tax the property;
  • A VAT registration number (if applicable);
  • the full address of the land/property in question, including postcode; the effective date of the option to tax if known;
  • the date you first charged VAT on the opted land/property;
  • the date the property was acquired and/or a loan was taken out by the opter on the relevant property; and
  • where applicable, a letter or deed of appointment to the role of Land and Property Act receiver or insolvency practitioner.

These upcoming changes to VAT Option to Tax should offer a more efficient process, with greater accuracy and simplification across this service.

However, it should be remembered that it is the responsibility of those making the original OTT request for ensuring accuracy and validity before submission.

If you need help or guidance on these upcoming changes to VAT, please contact our tax team today.

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