One of the changes made in last year’s budget was the introduction of VAT on the letting of buildings and other structures, often shipping containers, for the storage of the tenants’ own goods. Although this measure was aimed at the self-storage businesses commonly used to store personal goods the law does not distinguish between “self-storage” and “storage”. Any letting of a facility that could be used to store the tenants’ goods could be affected.
Since 1 October 2012 most lettings of this type are now standard rated. This means that anyone letting a structure that is capable of being used for storing goods needs to be aware of how the property is being used by the tenants and what the VAT position is.
It has been widely believed that the change to VAT on storage affected only specialist self-storage businesses but this is not the case. This means that many businesses may not have been charging VAT on rents and so will have to correct their VAT returns.
An important aspect of the change is that the landlord has to be aware of how the tenant is using the let property. For instance, a commercial unit may have been let some years ago and used initially as a workshop but the tenant’s business may now have changed and the unit is now mainly used to store the tenant’s goods. VAT may now be due on the rents even though the landlord is not aware of the change of use. This could be expensive for the landlord if the use as storage continues for a few years and is then discovered by HMRC. Tenancy agreements for commercial premises may need to be amended to ensure that changes of use are notified in good time to the landlord. The agreements may also need to be varied to allow VAT to be charged on top of the rent in these circumstances.
If the storage of goods is ancillary to the main purpose to which the tenant puts the property there is no need to charge VAT, for example, where an unopted property is used as a shop and part of the premises is used to store stock sold in the shop.
Note that the storage charges may be standard rated regardless of whether the property has opted to tax.
Exemption continues to apply in certain circumstances, notably where there is charitable use,or where buildings are used for keeping livestock.
HMRC has issued revised guidance in Information Sheet 10/13 available at http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageLibrary_ShowContent&propertyType=document&columns=1&id=HMCE_PROD1_032879
The guidance covers many of the issues raised by businesses since the introduction of the change.
If you need further advice or need to adjust previous returns we can help.