HMRC has issued a call for evidence on the current VAT rules relating to land and property, specifically the VAT land exemption. This is a complex area of the VAT legislation, besieged with pitfalls and often subject to misinterpretation.
As a result, HMRC believes that many businesses spend too much time and effort trying to establish the correct VAT liability for their supplies, especially as there are over 15 exceptions to the VAT land exemption in the legislation.
HMRC’s call for evidence is split into 2 sections:
- the first looks at the history of the land and property VAT rules, highlighting how they have become increasingly complex. It considers factors that are driving the need for simplification; and
- the second discusses possible solutions for the issues caused by the current complicated nature of these VAT rules.
HMRC is specifically seeking views on several aspects including:
- Whether or not the land and property VAT rules would benefit from simplification;
- How short-term and minor interests in land should be defined and whether or not they should be subject to VAT;
- The option to tax;
- Whether or not exempt land and property supplies should be subject to VAT; and
- Recording the VAT liability of interests in land in the Land Registry.
If you would like further information on the call for evidence or would like to make your own representations to HMRC directly please click here: https://www.gov.uk/government/consultations/call-for-evidence-simplifying-the-vat-land-exemption
It is our view that while the land and property VAT rules are extremely complex, any major overhaul, in particular any attempts to change which supplies are exempt from or subject to VAT may result in further confusion. This is particularly the case if businesses need to reconsider historic positions and link this through to the revised rules. Only carefully considered changes should be made, and should be done so in a way that avoids further confusion.
In our experience, the issues associated with this exemption are also due to the administrative processes associated with it. For example, it can often take a business many months to find out from HMRC whether or not an option to tax has been notified by it historically. We consider, therefore, that simple tweaks to these processes, such as recording the VAT liability of interests in land in the Land Registry or on the businesses Government Gateway account, would significantly reduce many of the problems taxpayers encounter with this exemption. In addition, HMRC could provide further clarification on common issues and strengthen some of the more ambiguous areas of its guidance, which may mean a full overhaul of this part of the legislation is not needed.
If you would like to find out more on the above or discuss VAT on land and property, please contact your usual Smith & Williamson representative.
By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. This briefing does not constitute advice nor a recommendation relating to the acquisition or disposal of investments. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of writing.
Tax legislation is that prevailing at the time, is subject to change without notice and depends on individual circumstances. Clients should always seek appropriate tax advice before making decisions. HMRC Tax Year 2022/23.
Smith & Williamson LLP
Regulated by the Institute of Chartered Accountants in England and Wales for a range of investment business activities.
Smith & Williamson LLP is a member of Nexia International, a leading, global network of independent accounting and consulting firms. Please see https://nexia.com/member-firm-disclaimer/ for further details.
Smith & Williamson LLP is part of the Tilney Smith & Williamson group.
Registered in England No. OC 369631.