The exercise of an option to tax (sometimes called the election to waive the exemption) has important consequences for the ability of a landowner to recover its input tax. If a landowner intends to make supplies of land or buildings that will be an exempt supply for VAT purposes (as will ordinarily be the case), it can exercise an option to tax. The effect of that option is to turn what would have been an exempt supply into a taxable, standard-rated, supply.

The option to tax rules are complicated, but were amended again on 1 April so as to change the rules allowing a landowner to revoke a previous option to tax. One of the circumstances in which an option to tax can be revoked is if the revocation takes place within a six-month ‘cooling-off’ period. One of the conditions was that the taxpayer must not have used the land (including occupying it) since the effective date of the option. In practice, this limited dramatically the ability of many landowners to revoke an option to tax where a proposed development failed to materialise. With effect from 1 April that condition no longer applies.