Many fund managers are taking a flexible approach to office working and allowing employees to continue working remotely. With offices being less used and firms needing less space, some managers may be considering subletting their premises. For VAT purposes, most managers may be in a VAT recovery position as their supplies are “outside the scope with the right of recovery”. This means that they do not charge VAT on their management/performance fees, but are able to recover VAT on most allowable costs of their business. However, supplies of land and buildings such as leasing or renting, is normally exempt from VAT. This means that no VAT is charged on the rent and no VAT can be reclaimed on expenses. Where a business carries out an exempt supply and a supply that is outside the scope with the right of recovery , they would be partially exempt for VAT purposes i.e. they may not be able to recover all input VAT. There is a solution. An “option to tax” can be made, that allows HMRC to treat the letting as a VATable supply i.e. VAT is charged on the rent and VAT on allowable costs can be recovered. Decisions to opt to tax made on or after 1 August 2021, must be notified to HMRC within 30 days. NB This 30 day period was temporarily extended to 90 days for decisions made between 15 February 2020 and 31 July 2021. So, to ensure optimal recovery of input VAT, fund managers that are considering subletting their premises need to be aware of the Option to Tax. If this is relevant to you, get in touch with our corporate tax team and we can advise on the right way to opt to tax, or submit on your behalf.