Why Would We Want to Opt to Tax?
The key to this is the ability to recover VAT on related costs. What we are doing to do is turn an exempt supply – on which you can’t recover any VAT – into a taxable supply on which can recover any associated VAT. We only need to consider opting to tax if renting property or selling a property in certain circumstances.
Examples of When to Opt to Tax
If the University was to buy a commercial property for £650,000 with the intention of renting it out. If the seller has opted to tax he will automatically charge VAT on the purchase price - £130,000. If the University simply rents it out without doing anything you will not be able to claim this VAT back because of the exempt rental income.
However, if we decide to opt to tax the property we can charge VAT on the rents to the tenant. In return you could reclaim all the VAT on the purchase, the associated professional costs and any ongoing expenses. If you decided to sell the property you would have to charge VAT on the sale.
Practical Tip
Opting to tax is quite easy: we complete form VAT 1614A (there are other forms in the series but this is the main one you need to worry about) and send it to HMRC.
The Tax Team keep a register of all options to tax for the whole University so please contact them before going down this route.
