Option to tax: belated notification of an option to tax: how to decide whether to accept belated notification
You should establish all the facts of the case, and consider two things:
Firstly, you should make a judgment as to whether the taxpayer actually made a decision to opt at the relevant time: - It is not necessary for you to have concrete evidence of the decision to accept that it was made, but it is necessary to be reasonably satisfied that the business did actually decide to opt at the relevant time and is not seeking to make a retrospective option (which should be refused). Guidance on whether to accept that a decision was made is in, In what circumstances should HMRC accept that a decision to opt was made at the relevant time? below.
Secondly, if you are satisfied that the decision was made at the relevant time, you should consider whether there is a special reason for refusing belated notification, such as tax avoidance (see Some reasons to consider refusing belated notification).
In what circumstances should HMRC accept that a decision to opt was made at the relevant time?
You should normally accept that the decision was made at the relevant time if:
- the taxpayer provides direct documentary evidence that the decision was made at the relevant time (such as historic copies of correspondence with third parties clearly referring to the fact that the option has been exercised), or
- the taxpayer provides evidence that output tax has been properly charged and accounted for since the date of the option and input tax claimed in accordance with the option, and a responsible person (such as a director) provides a written declaration that the decision to opt was made at the relevant time and that all relevant facts have been provided.
However, even if one of these bullet points is met, you should not accept that decision was made if the evidence is contradictory (for example, the liability of the supplies was queried in the past and no mention of the option to tax was made).
If neither of the above bullet points is met, you should consider the full circumstances of the case and come to a decision, on the balance of probabilities, as to whether the decision to opt was made on the relevant date. It is not appropriate to reject the case simply on the grounds that neither of the above bullet points is met.
Some reasons to consider refusing belated notification
Even if you do have reasonable grounds for accepting that the decision to opt was made on the relevant date, there may be reasons to refuse belated notification. It is necessary to consider the full circumstances before making a judgment. For example, belated notification should be refused where:
- the exercise of the discretion is sought in connection with a tax avoidance scheme and acceptance would result in an unfair tax advantage, or
- the evidence is contradictory (for example, despite assurances that a decision was made there is evidence of previous liability enquiries in which no mention of the alleged option was made).
There may be other exceptional circumstances in which you think there is a reason to refuse belated notification. It is not possible to cover all possibilities in this guidance.