VAT – Opting to Tax on Commercial Property

Every week we take a look at what is trending in the accountancy and tax press and share items that we think will interest you. However, these are only outlines, and where they relate to tax planning should not be acted upon without looking into them more completely as everyone’s circumstances are particular to them. You need to take specific advice appropriate to your own circumstances.

While every effort is made to deliver accurate, informative, and balanced articles this content is general in nature and should not be used as the sole basis for making decisions.



HMRC – One Login

A new login service which has two-factor authentication will be rolled out across all government web services to replace the current Government Gateway accounts over the next three years.

In due course, One Login will replace all existing login and identity checking platforms across the central government.

The estimated cost over the next 3 years is £305m, which includes development, implementation, running the system, and support for users and services. It will see up to 145 services from across the government join by March 2025’.

Two factor authentication is included in an attempt to cut fraud. A code is required in addition to the password.

When a user proves their identity using GOV.UK One Login, there will be sophisticated counter-fraud measures in place to ensure they are who they say they are.

However, One Login will include multiple ways for people to prove their identity including those without photo documentation such as a passport or driving licence.

From Spring 2024, HMRC will begin to invite those of you without existing HMRC online sign-in details to create a GOV.UK One Login account. There will then be a gradual migration of the rest of you.

It is important to note that HMRC will contact you to advise you to migrate. It will not happen for everyone at the same time, and you do not need to do anything unless HMRC contacts you.

However, agents such as us, will continue to use Government Gateway to access online services for the time being and HMRC has not yet finalised details of how the agent rollout will work and the timetable. We are not a priority.

Once the system is fully operational, the full range of HMRC and wider government services will be available online through the single login, including income tax, student loans, and Universal Credit, which are currently available through Government Gateway.

Going forward, anyone accessing government services online, including HMRC, will automatically be asked to create a GOV.UK One Login.

Once you start the registration process, HMRC first checks your email address by sending a six-digit security code to verify the email. Then the system will send security codes to verify identity via text message or authenticator app for mobiles, tablets, or computers.



Are Accountants Stuffy and Dull?

Apparently, 49% of accountants think the job makes them  ‘stuffy and dull’ and that people thought they were boring. I think I am in that 49%. Another misconception is that you have to excel at maths to get a job in the sector and that is definitely not the case.

However, 77% of business leaders said that the stereotype of accountants being boring was false. However, 27% thought that accountancy was a stuffy, dull profession. A third viewed accountants as introverts who love numbers.

Roan Lavery, CEO of Free Agent said: ‘The data highlights a disparity in how the profession is viewed by both businesses and accountants, giving insight into how modern accountants are increasingly playing strategic roles within organisations beyond perception.

The sector continues to evolve, and so it is inevitable that the perception of accountants and the profession is also going to evolve.

In reality, successful accountants need to possess a combination of analytical prowess, strategic and creative thinking, as well as strong interpersonal skills, serving as trusted advisors and strategic partners in decision-making processes.

And Maths is not a critical skill.  59% of accountancy recruiters valued high attention to detail followed by problem-solving, Numbers, and importance but only came 4th in the hiring hierarchy.



Zero Hour Workers

Holiday for irregular hours staff and part year staff is set to change significantly from April.

What to do:

  1. You need to confirm that your zero hours employees fall within the definition of irregular hours or part year workers.

Irregular hours workers – workers whose paid hours set out in their contract vary in each pay period e.g. a zero hours contract.

Part-year workers – are those who are contractually only required to work for part of the year and for the remainder neither work nor receive pay.

2 Confirm when their holiday year runs from and to. The changes being brought in on 1 April 2024 will apply to all holiday years starting on or after that date. So, if your client has a holiday year that runs from April to March, the changes will apply immediately.

The Changes:

  • For holiday years starting on or after 1 April 2024 part year and irregular hours workers will accrue holiday based on 12.07% of the hours worked in the pay period; and
  • A choice of one of two methods to pay holiday pay to irregular hours and part year workers will be available:
  • Either the holiday is booked as normal and paid when it’s taken; or
  • It is ‘rolled’ up and paid in each pay packet so no pay is received during leave. If you use this method pay must be uplifted by at least 12.07% each pay period. This must have its own separate line on the payslip which states how much holiday pay is included and you will need to ensure workers on this type of holiday pay actually take leave.



Changes to Scottish Charity Regulator Powers

OSCR will have new powers to ‘compel changes and improvements that need to be made in a charity’. At present, the OSCR has very limited powers and is only able to ‘instruct’ a charity not to do certain things.

The regulator will also be able to appoint interim trustees to help charities that cannot function due to a lack of charity trustees.

OSCR will also be able to launch investigations into former charities and charity trustees. This will include organisations that are no longer charities and individuals who were previously charity trustees.

Tougher rules on financial reporting will also be introduced.

OSCR will have the power to remove charities from the Scottish Charity Register that have failed to submit accounts on time and failed to engage with OSCR to rectify the breach.

In addition, only charities with a Scottish connection will be able to register in Scotland.

The changes are due to come into effect from 1 April 2024 in the Charities (Regulation and Administration) (Scotland) Act 2023.

The changes are intended to:

  • Make charities more accountable and transparent.
  • Strengthen OSCR’s powers.
  • Bring Scottish charity law up to date with certain aspects of the law in England, Wales, and Northern Ireland.

OSCR intends to publish the trustees’ annual reports and accounts of all Scottish charities and in so doing meet its new legal obligation to make ‘statements of account’ available to the public.

Companies House reforms

Amendments to the Companies Act 2006 remove the option for small non-charitable companies, including trading subsidiaries, to prepare abridged or filleted accounts. This has a knock on effect for small charitable companies.

The effective date of amendments to the Companies Act has not been made public.



HMRC Service Standards

It will come as no surprise to anyone trying to interact with HMRC that service standards are at an all time low.

The latest report into HMRC performance released by the Public Accounts Committee (PAC) paints a dismal picture of declining service standards, described as reaching an ‘all-time low’, with long waits on phone lines where they have not been cut, a rising number of taxpayers with complex issues, and HMRC’s insistence that taxpayers use the website to resolve their problems.

MPs also said that HMRC and Treasury have made a ‘conscious choice‘ to reduce the amount of telephone support and advisers on the lines, despite demand rising by 10% and taxpayers facing increasingly complex tax scenarios that they are unable to resolve online.

With a twin rise in the taxpayer population and the complexity of people’s tax affairs, the PAC stated in the report that HMRC is ‘apparently struggling to cope’.

PAC set out six recommendations for HMRC to implement as a matter of urgency to improve the declining service standards, address fraud and tax evasion by closing the tax gap, increasing the number of prosecutions, and crack down on abuse of Companies House registrations by fraudsters using fake addresses belonging to innocent members of the public.

Top of the list is the urgent recommendation to address service quality, with the PAC report calling on the Treasury and HMRC to ‘ensure HMRC’s customer services are sufficiently resourced in the short as well as the longer-term so that it can meet its service standards until its digital services adequately address the needs of taxpayers and their agents’.



VAT – Opting to Tax on Commercial Property

The VAT on the property can either be standard rated, reduced rated, zero rated, or exempt depending on the transaction. The VAT position can also be affected by the use of the property, whether it is commercial or residential, and often has significant implications because the values involved can be high.

The default position is that the grant of a freehold, lease, tenancy, or license to occupy land or buildings is exempt from VAT. The exception to this is where a commercial property is less than three years old, in which case the default position is that the standard rate of VAT applies to a freehold sale.

VAT-exempt treatment means that no VAT is due on income received but the person making the supply is unable to recover VAT incurred on related expenses.

Opting to tax land (which includes any buildings or structures permanently affixed to it) means that as a default all the supplies made of an interest in the land or buildings will instead default to be standard rated and VAT is recoverable on costs that are incurred in making those supplies.

There are though some specific rules around the scope of an option to tax (in particular, it does not change the VAT treatment of residential property), how an option to tax is to be made, and the date that any option is effective from.

An option to tax is made by the person who has the interest in the property, the option does not move across to a purchaser or tenant automatically. So, if a seller opts to tax a property and sells this to the purchaser for £1 million plus £200,000 VAT, the purchaser does not automatically have an option to tax over that property. The purchaser can reclaim the VAT only if it uses the property for a taxable purpose. If the purchaser intends to lease the property to a tenant, the purchaser will also need to opt to tax its interest in the property.

You do not have to make an option to tax in order to reclaim the VAT you are charged on the purchase of the property. The reason for this is that you need to consider the use of the property. So, if you are a manufacturing business that makes wholly taxable supplies and you purchase a new factory site, you would be able to recover the VAT incurred on purchasing the site because you are using the factory to make taxable supplies.

Opting to tax is a two-stage process, the first stage is making the decision to opt, and the second stage is to notify HMRC of the decision in writing. Quite often the first stage is completed but not the second stage.

HMRC normally expects a business to notify an option to tax within 30 days of making the decision to opt. Completing the form VAT1614A is the appropriate way of notifying HMRC of the decision to opt for tax. An option to tax has no effect unless it is notified to HMRC within 30 days of when it is exercised.

If a business deregisters that has previously opted to tax a property, the option to tax remains in place. As such, if the business has to register for VAT again in the future, there is still a valid option to tax in place.

Another issue arises on deregistration because having opted for properties on hand at deregistration results in the business having to account for VAT on the value of the properties under the ‘assets on hand at deregistration’ rules.



Banks Close Small Business Accounts Without Notice

An investigation by the Treasury Committee has found that  nearly 3% of bank accounts held by small businesses have been closed by their banks in the last year with little or no notice

Reasons given for the de-banking of businesses include risk appetite, financial crime concerns, and lack of information-sharing.

Chair of the Treasury Committee, Harriett Baldwin, said: ‘One of the most startling pieces of evidence emerging from our inquiry into Access to Finance for small and medium-sized business is the readiness of lenders to close business bank accounts with little or no notice.

‘Our Committee believes that any company engaged in a legal business activity in the UK should be able to find a bank to offer them a bank account.’




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