In Rowhildon Ltd v HMRC [2018] TC06669¸the First-Tier Tribunal (FTT) decided that HMRC were unreasonable to refuse a belated notification of an option to tax, as there was sufficient evidence of the positive decision to opt.
An Option to tax will have effect from the day on which it is exercised, if HMRC are notified within 30 days of that decision to exercise the option.
HMRC have discretion to accept a late notification of the option to tax where it is clear that the taxpayer made the decision to opt to tax at the time specified, are not exercising that option retrospectively, and there is no good reason to refuse.
Where the option to tax is in place, the supply of commercial Land and Property will be standard rated rather than exempt.
- The taxpayer agreed to purchase a property in June 2016.
- The VAT 1614A notification form was completed on 1 July 2016 and signed that day.
- It was posted on 4 July 2016 untracked and there was no log of outgoing post.
- A copy of the form was on file.
- HMRC carried out an inspection in October 2016 and it became clear that they had not received the notification.
- HMRC refused to accept the belated notification, i.e. refused to accept the copy as evidence, without proof of postage.
- HMRC did not accept that board minutes stating that ‘all necessary paperwork should be dealt with’ was sufficient other evidence of the decision to opt to tax.
- HMRC advised that there was no good reason to refuse the belated notification other than that there was no evidence of a positive decision to opt to tax on 1 July 2016.
The FTT allowed the taxpayer’s appeal:
- The taxpayer demonstrated the process involved in completing the VAT 1614A form on HMRC’s website.
- The form creates an error message when the date of the signature is completed with a date earlier than the day the form is completed.
- It was also shown that the form could not be printed with this error outstanding.
- Based on the copy on file showing the signature date of 1 July 2016, and the demonstration by the taxpayer of the online system, it was clear that the decision to exercise the option to tax was made on 1 July 2016.
- HMRC acted in a way in which no reasonable person would have acted given the facts and evidence provided:
- They had been given a copy of the signed form before making their decision.
- This was evidence of the date of the decision.
- They confirmed that the lack of evidence was the only reason the notification was refused and as this was sufficient evidence, there was no good reason to refuse the notification.
The belated notification of the option to tax was therefore acceptable and the property was opted to tax from 1 July 2016.
Links
Opting to tax land and property
Land & Property VAT at a glance
External link Rowhildon Ltd v HMRC [2018] TC06669