23 May 2018
We have experienced an increase in activity from HMRC, specifically in relation to the sale of commercial properties.
The activity is coming from HMRC's option to tax unit in Newcastle which seems to have the sole purpose of reviewing any and all commercial property transactions via Land Registry records. Where a commercial property transaction occurs, HMRC will know about it.
The objective is to challenge those sales where the property was sold without VAT. HMRC can identify this by cross referencing the date of the property sale to the taxpayers VAT returns, the sale of say a £500,000 property will appear in Box 6 of the VAT return (sales excluding VAT) but if Box 1 (output tax due on those sales) is not at least 20% of £500,000 then HMRC will now the sale was not subject to VAT.
Where HMRC establish a no-VAT sale, they will then check their option to tax records to see if the property had ever been opted in the distant past and this can catch a lot of businesses out.
HMRC are also using this same data to challenge Transfer of Going Concerns (ToGC) which involve property. For a ToGC to be valid, any property that is opted to tax must also be opted to tax by the buyer before the date of transfer which also catches a lot of businesses out.
The challenges from HMRC are not always valid but the challenge is still a risk to the business and a time and cost burden too and if the challenge turns out to be in HMRC's favour, the VAT liabilities and penalties could be substantial.
So, if you are intending to sell a commercial property or sell a business which includes property, HMRC will know about the transaction and they will check to make sure it has been done correctly, so we suggest added caution ahead of a commercial property or business sale just to be safe.
Don’t leave this to chance, speak to your advisors or speak to us if you want to know more.
