CIOT and Law Society challenge need for overhaul of the VAT land exemption

The CIOT does not favour of a major overhaul of the VAT rules for land and property ‘at this time’ as, for the majority of land and property transactions, the VAT position is clear and administratively straightforward. Any major change would create additional complexity for taxpayers. The CIOT would also like to see any changes considered from a wider social policy and green taxation policy perspective.

Although the Law Society agrees that simplification should be considered to address particular issues with the scope and application of the rules, and to ensure that taxpayers can comply with their tax obligations, it recommends that any changes should focus on specific areas of concern before considering whether wider changes are needed.

The Society opposes some of the more ‘potentially disruptive’ proposals such as making all land transactions exempt or, conversely, making all land supplies taxable, instead preferring consideration of:

• making supplies of commercial property taxable but with an option to exempt; and
• making all residential property transactions zero-rated.

The CIOT identifies a number of areas of complexity which would benefit from further attention, including:

• legislative definitions: particularly those used in VATA 1994 Sch 9 (which sets out the VAT exemption groups) and also terminology around rights over land and the letting of immovable property; and
• the option to tax: the CIOT would support simplification of the administration and operation of the system.

The law Society would like to see a focus on:

• clear identification of the boundary between land and non-land supplies;
• the VAT treatment of payments connected with land;
• complexities and potential pitfalls associated with the zero-rating of residential property; and
• the VAT treatment of bundled services that include the occupation of land.

The Law Society also recommends the creation of a publicly available and searchable register of options to tax which could be accompanied by a searchable register of entities that are VAT registered, going beyond the functionality of the current VAT number check facility.