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.
- 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.
- 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.
- 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.