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VAT on land and property: HMRC consultation

/ 17 May 2021

Simon Levine

When the then-Chancellor Anthony Barber introduced VAT in the UK on April Fool’s Day 1973, he famously (or perhaps infamously) described VAT as ‘a simple tax’.

In fairness, in some of its manifestations VAT is simple.  But in others it has a complexity that makes the plot of Line of Duty look childishly uncomplicated.  And this is nowhere more true than in its application to land and property.  Starting from the position which made supplies of land and property exempt from VAT apart from four fairly straightforward exceptions, we now have 15 separate exceptions covered by 26 sets of guidance notes.

HMRC recognise this as a problem.  They have opened a consultation aimed at exploring options and ideas to simplify the land and property VAT exemptions.  We warmly welcome it.  And since, following Brexit, it is now permissible for the UK to set domestic VAT rules that diverge from the EU code, there is even some credible prospect that changes may be made.

It will not be easy.  The Office for Tax Simplification (‘OTS’) have previously identified a number of options but rejected them all.  Three of these options are now up for reconsideration together with three fresh possibilities.  And HMRC say that they are open to other suggestions as well.

The three previous OTS suggestions are:

  • Removing the option to tax and making all relevant transactions exempt
  • Removing the option to tax and making all land and property taxable at a reduced rate
  • Making all commercial land and property taxable at the standard rate with an option to exempt

The three new suggestions are:

  • Making short-term or minor interests subject to VAT
  • Making most supplies of land subject to VAT, and exempting specific supplies
  • Linking the VAT liability of supplies of land and property interests to those that have been registered with the relevant Land Registries in England, Scotland, Wales and Northern Ireland

So, HMRC’s ears are open.  They are asking:

  • What is your experience of the VAT rules on land and property?  In particular, are there any supplies that are particularly difficult to establish the correct liability for?
  • Do you agree that the land and property VAT rules require simplification? Or is their current complexity an acceptable price to pay for the flexibility they afford?
  • What are your views on the ‘OTS’ options?
  • What are the advantages and disadvantages of making all minor and short-term interests in land and property subject to VAT? How should a minor and short-term interest be defined?
  • What are your views on the option to make supplies of land and property subject to VAT apart from certain specified exceptions?  Which particular supplies of land and property should continue to be exempt from VAT?  Are there any supplies that should be subject to VAT that are currently exempt or vice versa?
  • What are the pros and cons of linking the VAT liability of interests in land to those recorded in Land Registers in England, Scotland, Wales and Northern Ireland?
  • Any other ideas for simplifying the VAT rules on land and property?

If you would like to contribute to the consultation process, please get in touch with your usual BKL contact or use our enquiry form. We can feed in your comments directly or via our involvement with the Chartered Institute of Taxation.

Simon Levine

Senior Adviser, VAT

T +44 (0)20 8922 9146
E simon.levine@bkl.co.uk

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