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Storage Facilities and VAT

Applying the VAT exemption to land and real estate transactions is difficult. HM Revenue & Customs (HMRC) conducts ongoing inquiries to simplify tax exemptions.


Storage Facilities and VAT


VAT Exemption

The VAT exemption is subject to many exemptions, including self-storage, the rules of which were changed almost 10 years ago. As a result of the change, premises were set up for self-storage of goods, automatically subject to VAT at a rate of 20%. Unfortunately, the result turned out to be far from simple in terms of how the rules should be interpreted.


For rural businesses that rent agricultural land and buildings that are used for storage purposes, it can be difficult to determine the correct VAT regime to apply. The starting point for considering the relevant VAT regime is the "object" itself. For income to be subject to VAT, storage must be provided in a fully enclosed building, block (or similar structure) or container. This will include storage facilities in barns, barns, commercial properties, but excludes Dutch barns, which are not fully fenced, and outdoor grounds.



Farmers with Surplus Real Estate

Farmers with surplus real estate often rent their barns to local businesses to store equipment, tools, and supplies. If the farmer is registered as a VAT payer, this income is subject to VAT, even if the farmer has not chosen to tax the business.



Self Storage

The next point to consider is whether the tenant is using the shed or apartment for "self-storage" purposes. The term self-storage may not be useful here, as it conjures up images of large suburban "barns" in which the buyer rents a small lockable block to store his property. For VAT purposes, self-storage simply means storing and using a space to store goods. If the facilities are used only to store goods, then the position will be obvious and VAT will be charged.


However, if storage is not the only use of the shed or facilities by the tenant, things get complicated, and if storage is ancillary to the business that takes place on or within that facility, the supply does not apply to the warehouse. In this case, the VAT position will revert to the property rental/lease position, which will be exempt from tax when possible.



Storage Facilities and VAT


Actual Use of the Storage Facility

When the law was changed almost 10 years ago, HMRC concluded that the actual use of the storage facility was the determining factor concerning the VAT regime. It was not important whether the landlord intended the use, as HMRC argued that the supplier was responsible for knowing whether the tenant kept the property on the leased property.


The terms of the lease can help here, however, if the lease does not specifically allow or prohibit use for storage, that is, the expectation that the landlord needs to know if the leased space is being used for self-storage purposes of the tenant. If the use of an object can be changed, its preferential use becomes important over time. To complicate matters, there are a few exceptions to contend with, including supplies for related people and charities. The storage of live animals is also specifically excluded from the automatic imposition of VAT according to the self-storage rules.


The provision of outdoor storage space, even in areas that do not qualify as fully enclosed, is not taxed on this basis, but can still be attributed to other reasons. The ability to tax the land would make the offer taxable, but if no such choice is made, the offer will be tax-exempt as long as it includes a lease or lease of land.



Rural Businesses

Rural businesses should seek VAT advice on any storage income. Choosing to tax the land or property would eliminate much of the uncertainty, but this is not always the best route. The choice of land and property available can sometimes be a burden on the owner when he is looking to sell it in the future. However, the fact that the provision of storage premises is a taxable delivery means that VAT on expenses incurred in the repair, maintenance, development, and improvement of the facility can be fully reimbursed without the need to select a tax. . This can be useful if the object has been designed with storage in mind, so it is likely to be used for that purpose for a long time.


There is something to think about when creating barns, units, containers, or other parts of the house. There is a spare farm or estate available for use for storage purposes, and we are strongly advised to follow the advice to ensure that VAT is charged and collected, where applicable, and that the VAT Refund Regulation is consistent with this.


What Self-Storage Should Landlord Do?

Landlords do not need to take any action if the lease is taxed in any way, for example, due to the possibility of taxation. In other cases, when they view a lease as tax-exempt self-storage, they should check whether the tenant's use of the premises creates a VAT liability and, as this may change over the lease term, do so periodically. In most cases, the lease allows them to add VAT to the rent, but this is not always the case.


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