Vat – Self-Storage of Goods

Joe Brown is a VAT registered farmer. He owns a barn and is looking to rent it out. He has found a potential tenant who wants to use it to store his stock for his shop.
The tenant is not VAT registered and was concerned that VAT would be due on the rent. Joe has carried out some research and believes the supply will be exempt as he has not opted to tax the property. Is this correct?

Generally, a licence to occupy land is deemed exempt under Schedule 9 Group 1 of VATA94 unless an option to tax is in place. Unfortunately, as with all things VAT, there are exceptions to the general rule.

A change introduced by the Finance Act 2012, required the standard rate of VAT to be applied to supplies of storage facilities with effect from 1 October 2012.

Although HMRC’s manual VATLP17500 has been updated to take account of the changes, Notice 742 has yet to follow suit

The legislation refers to “facilities for self-storage of goods”, but the changes are not restricted to the type of storage where a small area within a dedicated building is rented by an individual to store their own personal property. The law specifies that “the self-storage of goods” means:

The storage of goods

In a relevant structure

By either of the following

1 – the person(s) to whom the supply is made; or

2 – a third party with the permission of the person(s) to whom the supply is made.

What is a “relevant structure”?

A “relevant structure” means the whole or part of any of the following:

  • a building
  • a unit
  • a container or other structure that is fully enclosed

If the storage is within a relevant structure then it is covered by the new rules.

The onus is now on the landlord to know what the property will be used for and charge VAT accordingly.

Where there is a single supply of facilities which are used by the customer for both the storage of goods and another purpose, the VAT liability follows that of the principal element of the supply in accordance with normal rules. The following examples may be helpful.

  1. A customer rents a warehouse in which to store goods but also uses a small amount of the space as an office. The whole supply is taxable, as the principal supply is that of space for storage.
  2. A retailer rents a high street shop which includes a stockroom. In some cases, the storage area may be greater than the retail space. However, the commercial reality is that the premises are being used as a shop. The rent payable is accordingly exempt unless the landlord has an effective option to tax.
  3. A delivery service uses a warehouse to sort and process mail. Whilst it could be said that the mail is temporarily stored in the premises, the reality is that the facility is used as a postal depot. The rent payable is exempt unless the landlord has opted to tax.

These examples are not exhaustive and each case should be considered on its own merits. In Joe’s case however, he would be making a standard-rated supply of storage facilities, irrespective of any option to tax.

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THERE MAY BE MORE TAX TO PAY ON YOUR DIVIDENDS IN JANUARY

The rules for taxing dividends changed radically from 6 April 2016 with the removal of the 10% notional tax credit and the introduction of new rates of tax on dividends. For many taxpayers there will be more tax to pay on those dividends on 31 January 2018.

Up until 5 April 2016, the 10% dividend credit meant that basic rate taxpayers paid no tax at all on dividend income as the 10% tax on dividends was covered by the 10% tax credit. For example, where a basic rate taxpayer received £9,000 dividends, this would be treated as £10,000 gross income but the 10% tax of £1,000 would be covered by the £1,000 tax credit. From 6 April 2016 the same £9,000 dividend would now be taxed at 7.5% once the £5,000 dividend allowance has been used making £300 tax due on 31 January.

Where dividends are received by a higher rate taxpayer, the loss of the 10% tax credit means that the full 32.5% rate applies to dividends in excess of the £5,000 allowance.

Thus, if a higher rate taxpayer received £30,000 of dividends, £25,000 of those dividends would be taxed at 32.5% meaning £8,125 due on 31 January 2018. Last year the tax on the same dividends would have been £7,500 after deducting tax credits.

If you can let us have all of your tax documents as soon as possible, we can let you know how much tax you need to pay next January so that you can set aside sufficient funds.

NON-RESIDENT LANDLORD & DISREGARDED INCOME

Joe Bloggs is a non-UK resident but has UK rental income and savings income. Does he need to report this in the UK?

UK property income will need to be reported in the UK.  Any letting agency that manages the property or the tenant that occupies the property has the responsibility of withholding basic rate tax before they pay the rent to the non-resident landlord.

Non-resident landlords may wish to complete NRL1 form (For individuals & NR2 for companies). This is to stop letting agents/tenants deducting 20% tax withholding on gross rents and reporting it to HMRC.

The non-resident landlord will need to complete an SA1 form to register for self-assessment if they do not already complete a self-assessment return.

However, the position is different for savings income. The taxpayer has the option to “disregard certain income” (ITA 2007, s 811 and HMRC HS300).

Disregarded income relates to income such as bank interest and dividends. Unfortunately, it does not cover rental income. Non-residents have two options, they can disregard certain income that has arisen in the UK but they lose their personal allowance or include the income on their UK tax return and retain the personal allowance (assuming they are entitled to the personal allowance. You may need to refer to double taxation treaty to check if personal allowance is given).

However, with the disregarded income, it does not apply to for “split year” tax years and the taxpayer/advisors need to be careful that they are not caught by the temporary non-residency rules (HMRC guidance RDR3 page 71), otherwise the disregarded income will come back into charge on the year of return.

In addition, that may be worth noting, is if you’re about to leave the UK or have left the UK, you do need to complete a P85 form to notify HMRC that you have left the UK if you are not within the self-assessment system.

ADVISORY FUEL RATE FOR COMPANY CARS

These are the suggested reimbursement rates for employees’ private mileage using their company car from 1 September 2017.

Where there has been a change the previous rate is shown in brackets.

 

Engine Size Petrol Diesel LPG
1400cc or less 11p

 

  7p
1600cc or less   9p  
1401cc to 2000cc 13p (14p)   8p (9p)
1601 to 2000cc   11p

 

 
Over 2000cc 21p

 

12p (13p) 13p (14p)

You can continue to use the previous rates for up to 1 month from the date the new rates apply.

WHEN IS A COMPANY VAN NOT A VAN?

The P11d benefits on company vans are generally much lower than company cars and where private use of the van is merely incidental to its business use by the employee, then there is no taxable benefit at all. But when is a van not a van?

In a recent tax tribunal case, the judge agreed that a VW Kombi van that had been converted so that it had two rows of seats for passengers was a company car not a van.

Under the employee benefit rules, a van is a vehicle where its primary construction is for the conveyance of goods or burden.  Kombi vans and those similar have not previously been thought to fall into this category due to them being designed to carry both goods and people. Historically, HMRC has offered a concession from 2002/2003 onwards for vehicles of a very similar construction, double cab pickups (including both uncovered and covered models), if the payload capacity of the pickup exceeds a metric tonne. HMRC accepts that these vehicles can be treated as a van for benefit in kind purposes.  The judge decided that the primary construction of the kombi van was not for the conveyance of goods alone but rather that its purpose was for the conveyance of both goods and people equally. This means that the Kombi did not meet the requirement to be considered to be a van and therefore for benefit in kind purposes it was a car. The same judge however decided that Vauxhall Vivaro vans converted so that they had two rows of seats were vans!

Similar rules apply for VAT purposes so contact us first if you want to check the correct tax treatment of the vehicle you are planning to buy.

VAT – BACKDATING VOLUNTARY REGISTRATION

Joe Bloggs, who is not registered for VAT as his turnover is just below the VAT threshold. In the last five years, he has incurred significant setup costs. Can he backdate a voluntary VAT registration and recover these?

Businesses only have limited rights to recover input tax retrospectively, so consideration should be given to the date of registration as you can normally only go back four years for recovering the VAT on goods still on hand at the date of registration and six months for services.

Provided that there was an entitlement to be registered a business can ask for a retrospective voluntary registration at the time of its application for registration. This can be backdated up to a maximum of four years prior to the date the application is received.

In effect, this means the business can then claim back VAT incurred up to eight years ago on goods still on hand on its first VAT return: by backdating the registration four years and then being able to go back another four years prior to the registration date.

The provision to negotiate an earlier date of registration is contained in the VAT Act 1994.  Schedule 1, paragraph 9(a), entitles a person who is not, and is not required to be VAT registered to register for VAT if he can satisfy HMRC that he is in business and is making taxable supplies.

Clearly where an earlier date is requested then output tax should be accounted for on any supplies made. The payments received would be treated as VAT inclusive and the VAT fraction of 1/6th should be applied to extract the VAT out of the amount.

An alternative is to issue VAT only invoices in an attempt to recover the VAT which should have been charged i.e. adding 20%. This is appropriate where the customers can recover VAT and there is a reasonable prospect that at least some of the invoices will be paid. It is recommended that business checks with its customers prior to issuing VAT only invoices. However, if payment is not received, bad debt relief can be claimed after 6 months. The bad debt relief claim in relation to a VAT only invoice is restricted to the VAT fraction of the VAT only invoice. It may seem unfair that the bad debt relief available on a VAT only invoice is restricted to the VAT fraction of the invoice. However, a VAT only invoice needs to be seen in the context of the total amount paid/ payable by the customer.

ARE SPOUSES WAGES FULLY DEDUCTIBLE?

HMRC have recently won a tax tribunal case where they were seeking to challenge the deduction for a wife’s wages in arriving at the profits of her husband’s business. The judge agreed with HMRC that the amount allowed as a deduction should be limited based on the hours spent and appropriate rate for the work done.

The general principle here is that the expense must be incurred wholly and exclusively for the purpose of the trade. Traditionally when the personal allowance was fairly low (e.g. £6,475 in 2010) it was quite easy to justify the wages paid to the spouse at around that level. However, there have been significant increases in the personal allowance in recent years to £11,500 in the current tax year and it is important that wages paid to the spouse can be justified.