Opting to Tax Land & Buildings - Revised notice

Supplies of land and buildings, such as freehold sales, leasing or renting, are normally exempt from VAT. However, you can opt to tax land, which includes any buildings or structures permanently affixed to it. You do not need to own the land in order to opt to tax. Once you have opted to tax all the supplies you make of your interest in, the land or buildings will normally be standard-rated, and you will normally be able to recover any VAT you incur in making those supplies. If you make changes to a building after you have opted to tax you will need to consider whether your option to tax covers those changes.

This notice replaces the June 2008 edition of Notice 742A Opting to tax land and buildings and includes VAT Information Sheets 06/09, 14/09, 02/10 and 08/10. The notice has been revised and provides additional guidance on recent changes to the law.

The main changes are:

• allowing 30 days in which to notify an exclusion of a new building
• when a body corporate ceases to be a relevant associate
• anti-avoidance provisions to prevent automatic revocation of an option to tax
• the conditions for revoking an option to tax within the six month 'cooling off' period
• the conditions for revoking an option to tax where more than 20 years have elapsed
• the time an option is revoked where prior permission is given by the Commissioners,
• an amendment to 'the connected persons' test
• an updated definition of occupation for the purpose of the anti avoidance measures 
• defining when acquisition of a property takes place

Comment:  
Option to tax is a dangerous area of the legislation and this notice needs to be read and understood by anyone with clients involved in anyway in land and property transactions.

DIY Housebuilders and Converters
VAT Refund Scheme - treatment of holiday homes

To address this issue, the DIY Housebuilders and Converters Scheme, refunds VAT incurred on the cost of building materials and on conversion services for private individuals.

Following a decision of the VAT Tribunal, HMRC now accept that the DIY Housebuilders and Converters Scheme applies to the construction of new holiday homes and to the conversion of non-residential buildings into holiday homes.

HMRC have never applied the DIY Housebuilders Scheme to holiday homes since their supply by a developer attracts VAT at the standard rate. However, the recent decision  has found that the existing legislation does allow the same recovery of VAT on building materials for holiday homes that have been constructed by the individual for a non-business purpose.

As a consequence of this decision, HMRC now accept that claims, for VAT incurred on building materials, may also be made for holiday homes that meet the necessary criteria.

Comment: 
The decision that has caused this amendment to the DIY housebuilders scheme does seem to be a little perverse, the scheme was originally introduced to remove the obvious anomaly of the person building his own house having to pay VAT when the person who bought it from a builder didn't.

VAT: pay-per-click charity advertisements

Pay-per-click (PPC) is used by organisations on search engines such as Google to encourage searchers following a search to click on the organisation’s link in priority to any other links on the results page. The organisation pays the search engine provider an agreed amount each time their website is accessed through the sponsored link.

HMRC have until now taken the view that a PPC-sponsored link is not an advertisement itself but simply a means of access to the charity’s website. As such, HMRC considered the costs of providing PPC were excluded from zero-rating.

HMRC now accept that PPC-sponsored links appearing on search engine websites are advertisements, and qualify for zero-rating when supplied to a charity. It follows that the supply of copyright and design services associated with such sponsored links fall within the zero-rating.

However, HMRC still maintain that services supplied by copywriters and designers for the purpose of search engine optimisation (structuring a website so that it contains as many keywords as possible) do not qualify for relief. HMRC consider that these services entail the optimisation of the charity’s own website, and so are specifically excluded.

The listing of a charity in the results of a search engine (‘natural hits’) does not constitute the promulgation of an advertisement since the charity’s name appears automatically, regardless of any action taken by or on behalf of a charity, and merely highlights text from the charity’s own website.

VAT status of University trading companies

Following developments in VAT case law and in methods by which education is delivered by universities, there has been a review of a policy on the treatment of supplies of education delivered by companies that are owned or controlled by a university. This review has identified a need for a change in policy, and as a result the VAT liability of supplies of education will change in certain circumstances. The new policy applies to supplies made on or after March 2010 subject to transitional arrangements.

Supplies of education are exempt from VAT when provided by a UK university and any college, institution, school or hall of a university. Following the review, in many cases where a university trading company provides education, they are acting as a 'college, institution, school or hall of a university.', this means that any education or training provided by the university subsidiary trading company is an exempt supply of education.

Once a university subsidiary company is regarded as an eligible body:

a) All supplies of education and vocational training provided by that company are exempt from VAT.

b) Any supplies which fall within Group 6 of Schedule 9 VATA 94 should be treated as an exempt supply.

Other supplies, in particular consultancy services, provided by a subsidiary company of a university remain subject to VAT at the standard rate.

The policy change comes into effect formally from March 2010. An affected company may also apply it with retrospective effect and make the relevant adjustments to its VAT accounting, subject to the statutory time limits.

However, many university companies have budgeted on the basis that their supplies would be taxed. Therefore, as a transitional measure, affected companies may continue to apply the old policy (taxation at the standard rate) to supplies, which are to be delivered before 1 August 2010.

VAT: liability of non-compliance carbon credits and carbon offsetting services

The important distinction, for VAT purposes, between compliance market credits and  non-compliance credits, commonly the Verified Emission Reduction (VERs) is that the former are capable of consumption of the type envisaged by the VAT system, and the latter are not. As VAT is a tax on consumption, this means that compliance market credits are subject to VAT, whilst VERs are outside the scope of VAT.

Whether you are an offset provider (offer advice and/or the facility to reduce an individual's 'carbon footprint'), or simply a business incurring VAT in order to offset your own carbon emissions, you must follow the usual rules to determine whether any VAT incurred is Input Tax and the extent to which it is recoverable.