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HMRC internal manual

VAT Land and Property

Option to tax: decision and notification: who should notify an option to tax? why does this matter?

In Section 7 of Notice 742A we specify who should notify a decision to opt. The purpose of this section is to ensure, as far as possible, that notifications are only made by those who genuinely have the authority to act on behalf of the taxpayer and reflect genuine decisions to opt. This is because an option to tax notification is only binding on a business where the business has actually made a decision to opt. In the case of Blythe Limited Partnership (VTD 16011) it was found that a solicitor had acted without authority when notifying an option to tax on behalf of a partnership. The partnership had not actually decided to opt some of the relevant properties, therefore, the solicitor’s notification could not bind the partnership in respect of those properties.

By contrast, if a director or person of similar authority signs an option to tax notification, this is evidence that a decision to opt was made and if the taxpayer contends that they did not in fact make a decision to opt, the burden of proof is on them to prove this. This is illustrated by the Tribunal decision in Windsor House Investments Ltd. VTD 19666. A director of a company signed an option to tax notification form (VAT 1614) and subsequently claimed that he had not made a decision to opt but had merely signed documents that had been sent to him by his accountants without looking at them. The tribunal dismissed the director’s appeal, stating in paragraph 118 of its decision that ‘as a director of WHIL, he must be assumed to have intended the consequences of his own actions. A trader cannot “hide behind” his advisers, particularly where those advisers do not have the authority to deal on his behalf.’ The tribunal also took account of the fact that all the director’s dealings with HMRC had been consistent with a desire to register, which in this particular case required the property to be opted, and that the director did not challenge HMRC’s acknowledgement of the option upon receipt of it.

In a further case, Grenane Properties Limited (TC00494), the First Tier Tribunal concluded that the making of an option required a positive intent. On the basis of evidence presented to it, the Tribunal considered that there was no such intent and that the notification resulted from a number of misunderstandings and poor communication. On the facts of the case it therefore found that a valid option to tax had not been made.