“Providing storage in the form of letting out land or agricultural buildings should be simple, but the rules are far from that,” says Nick Hart, VAT Director at Saffery Champness, and a member of the firm’s Landed Estates and Rural Business Group.
The starting point to identify the correct VAT treatment is the design of the facility itself as, for income to be subject to VAT, storage has to be provided in a fully enclosed building unit, or similar closed structure, or a container. Barns, grain stores, or commercial units are eligible but Dutch barns, structures that are not fully enclosed, or plots of land are not considered facilities for self-storage in this context and different VAT rules apply.
If a farmer is VAT registered, then income from the supply of a facility for self-storage is subject to VAT even if the farmer has not opted to tax the facility.
In some instances, the use by a tenant of a building or unit will include the storage of stock or equipment, but that element is ancillary to the business which the tenant is carrying on from those premises. For example, a unit used by the tenant as a retail outlet will be used in part for the storage of stock, but the main use is the operation of the store itself and here there is no provision of a facility for storage by the owner. The supply then is one of leasing/letting of property which is exempt from VAT subject to the option to tax. In other cases, however it may not be immediately apparent how a tenant is using let premises and complexities for the landlord can then arise.
“Contractual terms are important with regard to determining the correct VAT treatment. For example, if a rental agreement does not specify the permitted use of a building or similar, then there is an expectation that the landlord should know whether the facility being let is used for storage purposes in the hand of the tenant. Also, where the use of a facility is subject to change, its predominant use over time becomes important.
“Other complications include supplies to ‘connected persons’ and to charities, and the storage of live animals which is specifically excluded from automatically being subject to VAT under the self-storage rules.”
The provision of open air space for storage, or space within buildings that are not fully enclosed, are not taxable supplies under the self-storage VAT rules but still could be taxable supplies for other reasons – for example an option to tax over the land would make the supply taxable, but where no such option has been made then the supply would be exempt provided it comprises a leasing or letting of land.
Opting to tax land or property may take away much of the uncertainty, but is not always the best route as opted land or property can become a burden on the owner should they choose to sell in the future. Where a taxable supply of a self-storage facility is being made this means that VAT incurred on costs such as repair and maintenance, and any development or improvement of the facility can be reclaimed in full without the need to opt to tax. It should be noted that for larger capital projects over £250,000, taxable use has to continue for ten years to maintain recovery and advice should be taken if there is any change of plans.
“There is much to think about what might appear to be a very simple opportunity and an additional income stream. Where spare barns, or space in barns, containers or other parts of a farm or estate are made available for use for storage purposes to clients for a charge then professional advice is strongly recommended to ensure that VAT is charged and collected where applicable, and that the VAT recovery position is consistent with that.”