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Farmers and rural businesses must keep thorough records if ‘opting to tax’

  • 26th May 2023

Farming and rural businesses are being advised to be extra diligent and keep detailed records when ‘opting to tax’.

Experts have warned that HM Revenue & Customs’ (HMRC) decision to stop issuing option to tax acknowledgment letters from 1 February 2023 puts the impetus on rural land and property owners to ensure that accurate, detailed records are kept on file.

While the supply of land or commercial/agricultural property is largely exempt from VAT, the party making the supply can elect an option to tax if they wish. This is generally so that the supplier can reclaim the VAT incurred on associated costs. Any option to tax election must be notified to HMRC.

Previously, when buyers and tenants needed to know whether they would incur VAT when buying or renting land or commercial/agricultural property, the letter from HMRC acknowledging the notification was accepted as proof of VAT status. Now, as HMRC has made the decision to stop sending out such letters, landlords and sellers are being advised to ensure that thorough records are kept in order to demonstrate that a valid option to tax has been made.

An automated HMRC email will be sent out when a tax election is submitted to the option to tax unit, which should be kept as part of records, but no acknowledgement will be received if an election to tax is made by post.

Failure to keep accurate records can cause complications further down the line, and uncertainties regarding option to tax elections can potentially delay or even prevent transactions being completed. HMRC will not check to confirm whether an election has been made where it is believed to be under six years old, as it is the business/land owners’ responsibility to keep their own records for at least six years.

Rural land and property owners need to ensure they have the procedures in place to prevent any future issues. For any help on this or other accountancy issues relating to farming and rural business, do not hesitate to get in touch with our agriculture experts.


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