HMRC has published the findings of a report commissioned to increase its understanding of why businesses choose to use the option to tax and the related administrative burdens. The report by IFF Research, delivered in April 2014, was based on research involving ten in-depth interviews with tax agents or advisors involved with providing businesses with information or advice on the option to tax, and a survey of 838 businesses affected by the option to tax.
Some of the report’s key conclusions are:
where businesses used the option to tax for properties leased to tenants, the majority tended to opt all their leased property;
the large majority of rent invoiced therefore related to opted properties;
where businesses sold property, they generally exercised the option;
‘recipients’, who are unable to fully reclaim VAT, encounter the option to tax fairly regularly. Just under half of property leased from landlords by this group was opted and around a fifth of purchased property was opted;
recovering input tax is seen by tax agents as the key reason for opting. The main reason for deciding not to opt a property was to accommodate potential tenants or purchasers who may be in VAT-exempt sectors;
tax agents felt that anti-avoidance rules in relation to the option to tax can be quite complicated and that this was an area that businesses often had limited understanding of and hence could benefit from external advice; and
although the administrative burden on suppliers could perhaps be reduced by the use of real estate elections, few were aware of this option and advisers are not inclined to work to increase awareness.
HMRC has published the findings of a report commissioned to increase its understanding of why businesses choose to use the option to tax and the related administrative burdens. The report by IFF Research, delivered in April 2014, was based on research involving ten in-depth interviews with tax agents or advisors involved with providing businesses with information or advice on the option to tax, and a survey of 838 businesses affected by the option to tax.
Some of the report’s key conclusions are:
where businesses used the option to tax for properties leased to tenants, the majority tended to opt all their leased property;
the large majority of rent invoiced therefore related to opted properties;
where businesses sold property, they generally exercised the option;
‘recipients’, who are unable to fully reclaim VAT, encounter the option to tax fairly regularly. Just under half of property leased from landlords by this group was opted and around a fifth of purchased property was opted;
recovering input tax is seen by tax agents as the key reason for opting. The main reason for deciding not to opt a property was to accommodate potential tenants or purchasers who may be in VAT-exempt sectors;
tax agents felt that anti-avoidance rules in relation to the option to tax can be quite complicated and that this was an area that businesses often had limited understanding of and hence could benefit from external advice; and
although the administrative burden on suppliers could perhaps be reduced by the use of real estate elections, few were aware of this option and advisers are not inclined to work to increase awareness.
