When must I tax the supply of storage facilities?
Terry Dockley & Co,
10 Rectory Close, Newbury, RG14 6DE
HMRC has published Information Sheet 10/13 VAT: the provision of storage facilities. The changes covered were effective from 1 October 2012 but HMRC seems concerned that their scope has not been properly understood.
A wider change than might at first appear
The changes are not confined to those businesses whose main activity is the provision of space to the general public to store their possessions. It extends to any provision of facilities for the storage of goods in a “relevant structure”.
The supply is taxable not only where the customer uses the facilities to store their goods, but also where the customer allows a third party to use the facilities for storage. For example, a farmer grants a lease on a barn to John. If John either uses the barn for storage, or allows a local club to use it to store its equipment, the farmer’s supply would be taxable. On the other hand, if John grants a sublease to the club, his supply would be taxable; the farmer’s supply would not then be taxable under these new rules.
This includes any building, unit, container or other structure that is fully enclosed.
Used for the storage of goods
HMRC are hoping for a common sense approach here, that takes a “practical” look at how the facilities are actually being used. The supplier’s intentions don’t matter and the terms of any agreement between the supplier and customer should not affect the analysis.
Premises used for more than one purpose
Where premises are used for both storage and for other purposes, the VAT liability follows the principal element of the supply. The following examples are among those provided by HMRC, each of which assumes that the landlord has not opted to tax:
- A warehouse that includes a small amount of office space: the whole supply is taxable.
- A high street shop with a stockroom for the retailer’s use: the whole supply remains exempt, even if the stockroom takes up most of the space rented.
The responsibility is the supplier’s
As is always the case with VAT, the supplier is responsible for getting the liability right. If you lease or let a space that could be used for storage, you need to keep ‘tabs’ on how it is used by your customer. If they are not using it for storage at present, you need to make sure that they notify you of any changes. That includes the situation where they give someone else permission to use it for storage.
In the case of new leases, it makes sense to include clauses requiring the tenant to notify the landlord if they start using a facility for storage, or give someone else permission to do so.
The new rules do not apply:
- To facilities for the storage of live animals.
- To transactions between connected parties, if the structure falls within the capital goods scheme and the adjustment period is still running.
- To supplies to charities that use the storage for non-business purposes.
- To freehold sales.