Any UK citizen who has an interest in free hold or leasehold commercial property and wishes to generate additional income from it, lets it out partially or disposes it off may consider an option to tax before any monetary funds change hands. This is a complex subject and it is always better that you take a professional VAT advice because generally sale and purchase of commercial properties involve large amounts.
In general, renting out property or land is not value added taxable. But it may turn out to be financially better for both parties, the lessee and lessor. In such instances, form VAT1614a has to be filled that will supersede VAT1614. Be very careful because if you submit VAT1614a, you will be opting to be taxed for twenty years which can be revoked in very limited circumstances. You can revoke the option to tax after twenty years with form VAT1614J.
For ease of tax payers, HMRC has also made available form VAT1614C. This form allows you to revoke your option to tax within six months of submitting your VAT1614a form. The six-month period is known as cooling period where you can analyse the implications of opting to tax. However, again make sure you seek professional accountants’ help in deciding to opt for tax or revoking your option to tax.
Generally speaking, when land or building are considered VAT exempted, the supplier of said land or building will not be able to reclaim any VAT that has been paid on any expenses incurred. You will therefore find it a better position to opt for tax if your land has buildings or structures on it. You can also specify which buildings or structure you are opting to be taxed and which ones you do not want to be taxed. You need not be owner or the land or building in order to opt for tax.
When you specify a building or structure for option to tax, you need to understand that the option by default applies to the land the said building or structure stands on. This also means that the land will be taxed in case the building or structure demolishes and a new building or structure that replaces the old one on the same land will also be taxable. You should take this into consideration when you try to learn what is VAT1614a and how will it be used.
If you, as a supplier of a building for rent opt to tax, you will reclaim any VAT on any additional supplies or expenses. Similarly, the party that rents your building will reclaim the VAT that they pay on rent if they also have voluntarily registered for VAT and/or are subject to VAT because they are above the VAT threshold. The entire law relating to tax land and buildings is complex and once a transaction has been completed, it will be difficult to prove VAT errors later on. Be very vigilant!