HM Revenue and Customs (“HMRC”) have issued a VAT Information Sheet 10/13: Provision of Storage Facilities (“the Information Sheet”) which provides clarity as to what constitutes “storage of goods” for the purposes of Value Added Tax (“VAT”) payable on storage facilities. The purpose of the Information Sheet is to establish the correct VAT liability for the use of storage facilities.
VAT Implications: Storage of Goods
Before 1 October 2012, the general rule was that rent is exempt from VAT. Therefore, properties leased for the purpose of storage were exempt from VAT provided the conditions for a licence to occupy land were satisfied.
However, the owner of the storage space could elect to pay VAT in which case the license to occupy the land becomes taxable at the standard rate of VAT (20%).
Value Added Tax Act 1994: Storage of Goods
On 1 October 2012, the Value Added Tax Act 1994 (“VATA 1994”) was amended so that VAT is now payable on properties leased for purposes of “the self-storage of goods.” If the goods are being stored in a relevant structure then that structure is being used for the storage of goods regardless of any intention of the supplier of the space or any agreement between the supplier and the customer.
VAT is payable on such properties even if the landlord has not elected to pay VAT. However, if the purpose of the storage is ancillary to the main commercial business (for example a stock room in a shop) VAT is not automatically charged, unless the owner of the property elects to charge VAT.
These changes are intended to create a level playing field by ensuring that the provision for the storage of goods are taxed consistently.
Certain storage facilities remain exempt from VAT such as the storage of live animals, storage of a premises rented to a charity and storage used for non-commercial purposes.
What is meant by “Storage” and “Self-Storage”?
When changes were introduced under the VATA 1994 there was some confusion as to what constituted “storage” or “self-storage”. The Information Sheet clarified what is meant by “storage” and “self-storage”.
Paragraph 1.5 of the Information Sheet stated that there is no difference between “storage” or “self-storage” and that both terms apply to any space which is used for the purpose of storage within a relevant structure which is the whole or part of a building, container or other structure which is fully enclosed.
Conclusion: Implications for Landlords
Owners of leased properties should monitor how the premises are used in order to avoid being liable to account to HMRC for VAT.
Another proposition would be for the owner to the premises to carry out regular inspect to ensure that the use of the property is not changed because if storage is not a permitted use under the lease, VAT is automatically chargeable.
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