Normally rent is exempt for VAT. When a business wants to charge VAT on rental income, HMRC needs to be notified within 30 days.
When the business has opted to tax for the rental income, all of the VAT on expenses (input VAT) is reclaimable.
Without notifying HMRC, the rental income will be VAT exempt, this means that the input VAT may not be reclaimable. There is a complicated formula to calculate the partial-exempt VAT and a test to examine whether the input VAT is 100% reclaimable or only partially reclaimable based on the proportion of the exempt supplies.
If you have opted to tax for the rental income, but have not notified HMRC within 30 days, HMRC may accept a belated notification of the option to tax. HMRC will need to see the evidence that the business really did opt to tax and make sure the business hasn’t claimed back VAT it’s not entitled to. It is at the discretion of HMRC whether or not to accept backdating, but with sufficient evidence, HMRC will be more likely to accept the belated notification.
