If you charge a rent on commercial property you should only add VAT if you have made an “option to tax”. Likewise, costs related to the property being let out should only be included in your VAT return if you have that option to tax in place.

An option to tax must be submitted to HMRC within 30 days of making the decision. HMRC will usually accept a late notification as valid, as long as the intention and actions of opting can be evidenced.

This sounds a fairly simple VAT related process, however the detail is long and can have significant consequences. For example, an option usually stays in place for at least 20 years, and will mean a sale of the property will have VAT added to the sale price.

For more reading, see initially VAT notice 742A. Or contact us for advice on this topic.

David Wilsdon