VAT Election notified too late to get TOGC Relief

The condition in Article 5(2A)(a) of the VAT (Special Provisions) Order 1995 requires not only that an option to tax has been exercised by the transferee on or before the relevant date but also that notification of that option has been given to HMRC on or before the relevant date. There is no provision to extend the time for that notification.

Where notification is given within the appropriate time limit the option may take effect from the date on which it was exercised. To that extent, and only to that extent, can the notification operate retrospectively.

In the First-tier Tribunal (Tax Chamber) case of Nora Harris v HMRC (2015) Mrs Harris was the Landlady of a Hairdressing Salon. She had opted to charge VAT on the rent. On 1 August 2011 she sold the building to her daughter.

Her daughter had got herself VAT registered in time so had her daughter opted to charge VAT on the property and notified the election to HMRC by 1 August 2011 the sale would have been treated as VAT neutral under the Transfer as a Going Concern VAT relief rules.

Unfortunately she had done neither and her efforts to notify a late election to HMRC were totally undermined because the tribunal ruled that the requirement to notify her VAT election to HMRC before the completion of her purchase was mandatory and that her failure to do so was fatal to the validity of her VAT election and would have been so even if her actual election had been made before completion of the purchase from her Mother.

In fact Mrs Harris’ daughter knew nothing about the relevant VAT rules and even her election to charge VAT was merely inferred from the fact that she charged VAT to the tenant after buying ownership of the freehold from her Mother.

This blog has been posted out of general interest. It does not replace the need to get bespoke legal advice in individual cases.