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HMRC internal manual

VAT Small and Medium Enterprises Assurance Manual

Supplementary or alternative checks: property - option to tax

From the list of known elected (opted) properties, check that all income has been standard rated, including freehold sales and lease assignments and surrenders, where the trader has received income.

Traders will usually account for output tax on the small amounts of rental income, but may forget to account for output tax on the larger amount of income received when sold etc.

If a property has been disposed of by way of a TOGC, check that the conditions of Notice 700/9 Transfer of a business as a going concern have been adhered to. Note details of any other properties in the trader’s ownership, and whether exemption has been waived on any. Update EF accordingly and ensure the details are recorded on GRID.

For each property held (or disposed of since the last visit), establish whether it falls within the Capital Goods Scheme. Notice and confirm whether appropriate adjustments have been made to the input tax recovery. This not only affects input tax incurred on the acquisition of the property, but (since 3 July 1997) input tax on refurbishments if the cost exceeds the CGS threshold. Details of the initial input tax recovery should be recorded in all cases including the amount and date.

The CGS applies to properties, which are occupied by the owners, as well as to those being leased out. The scheme runs for ten years, and in view of the requirement that trader’s records are kept for a minimum of six years, it is important to capture this information early