VAT option to tax: prove which supplies the property file covers
Before adding VAT, check that the file shows the supplier's dated decision to opt, the land or building it covers, a written notification to HMRC and the effective date. Then check the particular supply against the Notice 742A exceptions, because evidence such as a valid VAT1614D certificate can keep one supply exempt while the option stays in place for others.
Before VAT goes on the rent invoice
A VAT-registered commercial landlord is about to issue its December rent invoice with VAT added for the first time. Before it goes out, the property file needs to show that an option to tax exists, who made it, which land or building it covers and when it took effect.
Many commercial property supplies are exempt unless an option has been made, though some, such as the sale of a new commercial freehold, are normally standard-rated without an option. Record the first decision to opt, its date, the entity that made it and evidence identifying the land or building, such as a plan.
Sources and context, checked :
Decision, notification and effective date
HMRC should normally be notified in writing within 30 days of the decision. VAT1614A is HMRC's notification form, and a compliant written alternative can be used. The effective date is the decision date or a later date the supplier specifies, and it can never be earlier than the decision. HMRC may accept a belated notification where it is satisfied about the original decision.
When notifying by email, save the sent email, the attached form and the automated response showing the date of receipt. HMRC stopped issuing formal notification receipts in 2023. The automated reply is evidence of receipt only and does not confirm that the option is valid. Keep the decision and correspondence for at least six years; longer retention is advisable.
Whose option and which property
The option belongs to the person making the supply and does not pass to a buyer when the property is sold, subject to VAT group rules. Look back 10 years before the proposed effective date for exempt supplies of the property, and consider any exempt supplies intended before that date. If there are any, check whether the automatic permission conditions are met. If they are not, written permission is needed using VAT1614H.
Sources and context, checked :
A hypothetical rent invoice
An ordinary VAT-registered commercial landlord decides to opt on 2 November 2026, prepares a property plan and notifies HMRC by email on 6 November, asking for a prospective effective date of 1 December. It keeps the sent notification and the automated reply. Assume the notification is timely and valid, no permission is needed, there is no VAT group, there is no invoice or advance rent payment before December and the rent after the option takes effect is an ordinary standard-rated commercial supply. New commercial freeholds, transfers of a going concern and anti-avoidance rules are outside this example.
The option settles the output VAT on the rent. Any input VAT recovery depends on the property's actual use and on the separate recovery and capital goods scheme rules.
| Item | Hypothetical detail |
|---|---|
| Decision to opt | 2 November 2026 |
| Email notification | 6 November 2026, within 30 days |
| Effective date requested | 1 December 2026 |
| Rent excluding VAT | £2,000 |
| VAT at 20% | £400 |
| Invoice total | £2,400 |
Sources and context, checked :
Supplies the option does not reach
Notice 742A sets out exceptions supply by supply. As a separate hypothetical, the same landlord sells an older property to a buyer who intends to convert it into dwellings. The sale can stay exempt despite the supplier's valid option if an eligible buyer gives a valid VAT1614D certificate by the required time, normally before the price is legally fixed, and no separate reason to charge VAT applies. The supplier may accept a late certificate at its discretion, and only for supplies arising after receiving it. A qualifying certificate can also apply to later supplies from the same grant for the covered building or part, such as later rent. It does not cancel the option itself.
Existing buildings that are already designed or adapted for use as dwellings, and intended for that use, follow a different rule from proposed conversions. Qualifying residential or charitable use has its own evidence requirements. Each grant is assessed separately, and transfers of a going concern are a distinct question.
Before the December invoice is raised, file the sent email, form, automated reply and property plan together and confirm the effective date falls on or before the rent tax point.
- Dated record of the decision to opt and the opting entity
- Plan or description identifying the land or building
- Sent notification, VAT1614A or written alternative, and the automated reply
- Effective date and any permission review for exempt supplies in the previous 10 years
- Any VAT1614D or other exception evidence matched to the specific supply
Sources and context, checked :