Value Added Tax (VAT) is a tax that is applied to the supply of goods and services in the UK. It is charged on the value added at each stage of production and distribution. Storage facilities are no exception to the application of VAT. In the UK, the VAT rules for storage facilities can be complex, and this article aims to provide a clear understanding of how VAT works for storage facilities in the UK.
Types of Storage Facilities
Storage facilities can be broadly classified into two categories: taxable and exempt. Taxable storage facilities are those that charge VAT on their services, while exempt storage facilities are those that do not charge VAT on their services. Exempt storage facilities are limited to certain types of goods, such as certain types of food, medical supplies, and books.
Standard Rate of VAT for Storage Facilities
The standard rate of VAT in the UK is currently 20%, and this is the rate that applies to most storage facilities. This rate is charged on the supply of goods and services, including storage facilities.
If a storage facility charges a customer for storage services, then it must charge VAT on the full amount of the storage charge. If the storage facility also charges for additional services, such as packing or transportation, then VAT must be charged on the full amount of these charges as well.
Reduced Rate of VAT for Storage Facilities
In some cases, a storage facility may be eligible for a reduced rate of VAT. The reduced rate of VAT is currently 5%, and it applies to the following types of storage facilities:
Self-storage facilities
Cold storage facilities for food
Storage facilities for caravans and boats
If a storage facility falls into one of these categories, then it may be able to charge a reduced rate of VAT on its services. However, it is important to note that the reduced rate of VAT only applies to the storage charges themselves, and not to any additional services that the storage facility may provide.
VAT Registration for Storage Facilities
If a storage facility has a turnover of more than £85,000 in a 12-month period, then it must register for VAT with HM Revenue & Customs (HMRC). Once registered, the storage facility must charge VAT on its services and submit VAT returns to HMRC on a regular basis.
If a storage facility has a turnover of less than £85,000 in a 12-month period, then it may choose to register for VAT voluntarily. This can be beneficial if the storage facility wishes to recover VAT on its business expenses. However, it is important to consider the costs and administrative burden of VAT registration before making this decision.
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 the 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, and commercial properties, but excludes Dutch barns, which are not fully fenced, and outdoor grounds.
Exemptions and Reduced Rates of VAT
However, there are certain exemptions and reduced rates of VAT that may apply to storage facilities, depending on the circumstances. For example, if the storage facility is used for the storage of goods that are intended for export outside of the EU, the storage provider may be able to zero-rate their fees for VAT purposes. This means that no VAT is charged on the fees, and the storage provider does not have to account for any VAT to HMRC.
There are also certain reduced rates of VAT that may apply to storage facilities, such as the reduced rate of 5% that applies to storage facilities used for the storage of certain medical equipment and supplies. In addition, there are certain goods that are exempt from VAT, such as certain food items and children's clothing, and if a storage facility is used for the storage of these goods, no VAT is charged on the fees.
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. Self-storage facilities are a type of storage facility where customers rent individual units for the storage of their personal belongings. In the UK, self-storage facilities are subject to the same VAT rules and regulations as other types of storage facilities. 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, there are certain VAT considerations that are specific to self-storage facilities. For example, if a self-storage facility is used for the storage of goods that are subject to VAT, such as furniture or electronic equipment, the storage provider must charge VAT on their fees. If a self-storage facility is used for the storage of personal belongings that are exempt from VAT, such as clothing or books, the storage provider does not have to charge VAT on their fees.
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.
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.
VAT for storage facilities in the UK can be complex. It is important to understand the different types of storage facilities and the rates of VAT that apply to them. Additionally, storage facilities must consider their turnover and whether or not to register for VAT with HMRC. By following these rules and regulations, storage facilities can ensure that they are compliant with UK VAT law and avoid any penalties or fines.
The VAT treatment for storage facilities in the UK in 2023 has some key aspects to consider:
Standard VAT Rate for Storage Facilities: The standard rate of VAT in the UK is 20%. This rate applies to most storage facilities, including services such as self-storage and storage of business and personal goods. VAT must be charged on the full amount of storage charges, as well as on any additional services like packing or transportation.
Reduced VAT Rate for Specific Storage Facilities: Some types of storage facilities may be eligible for a reduced VAT rate of 5%. This includes self-storage facilities, cold storage facilities for food, and storage facilities for caravans and boats. It's important to note that this reduced rate applies only to the storage charges and not to additional services provided by the storage facility.
VAT Exemption for Certain Storage Facilities: There are exemptions from VAT for storage facilities used for certain types of goods. For instance, storage facilities for specific goods like certain food items, medical supplies, books, or those intended for export outside of the EU can be exempt from VAT. Additionally, storage facilities for certain medical equipment and supplies may be eligible for a reduced VAT rate of 5%.
VAT Registration Threshold for Storage Facilities: Storage facilities with a turnover of more than £85,000 in a 12-month period must register for VAT with HM Revenue & Customs (HMRC). Once registered, they must charge VAT on their services and submit VAT returns regularly. Facilities with a turnover below this threshold may choose to register for VAT voluntarily, which can be beneficial for recovering VAT on business expenses. However, it's crucial to weigh the costs and administrative burdens of VAT registration.
VAT Exemption Complexity: VAT exemption rules can be complex, particularly for rural businesses renting agricultural land and buildings for storage purposes. The nature of the storage space (e.g., fully enclosed buildings or containers) often determines the VAT regime. It is also important to consider the actual use of the storage facility rather than the landlord’s intended use, as this impacts the VAT regime applicable.
Advice for Rural Businesses: Rural businesses renting out storage space should seek VAT advice to navigate the complexities. While choosing to tax the land or property can eliminate uncertainty, it might not always be the most advantageous route. The nature of the storage premises as taxable delivery allows VAT on expenses incurred in their repair, maintenance, development, and improvement to be fully reimbursed, which is beneficial for facilities designed for long-term storage use.
These updates and rules highlight the intricacies of VAT application on storage facilities in the UK and underline the importance of understanding the specific circumstances of each storage facility to ensure compliance with VAT regulations.
2024 Updates Affecting VAT for Storage Facilities
Overview of Changes
The year 2024 has introduced several significant updates to the VAT landscape for storage facilities in the UK, impacting how businesses in this sector operate financially. These changes are particularly focused on VAT registration thresholds and the specifics of VAT liability for different types of storage services.
Increased VAT Registration Thresholds
One of the key updates is the increase in the VAT registration and deregistration thresholds effective from 1 April 2024. The threshold for mandatory VAT registration for businesses has risen from £85,000 to £90,000 in taxable turnover, while the deregistration threshold has moved from £83,000 to £88,000. This adjustment is significant for small to medium-sized enterprises (SMEs) in the storage facility sector, potentially reducing the number of businesses required to handle the complexities of VAT registration and reporting.
VAT Liability for Storage Supplies
In terms of VAT liability, there have been clarifications and continuations of existing rules rather than new changes in 2024. The general rule remains that the provision of storage facilities, unless explicitly exempted or subjected to different conditions, attracts the standard rate of VAT. This standardization primarily aims to simplify the VAT system and prevent avoidance strategies that might have been employed under varying conditions for different storage services.
Practical Examples
For practical application, if a business offers storage space that is predominantly used for storing goods but includes ancillary uses like office space or retail areas, the VAT treatment follows the principal use. For example, if a warehouse is primarily used for storage but includes a small office, the entire service is subject to VAT at the standard rate. However, if the ancillary use becomes the predominant activity, then VAT exemptions or different rates might apply depending on the specific circumstances of the service provided.
Implications for Businesses
These updates necessitate that businesses in the storage facility sector review their current VAT status and prepare for the changes in the registration thresholds. They may also need to reassess how they allocate and document space usage within their facilities to ensure compliance with the clarified rules on VAT liabilities. Additionally, the increase in thresholds provides an opportunity for smaller storage providers to remain outside the VAT registration requirements, potentially easing administrative burdens and financial overheads associated with VAT compliance.
The 2024 updates to VAT regulations for storage facilities reflect the UK government's efforts to simplify tax obligations for businesses and ensure fair taxation practices across different sectors. By staying informed about these changes, storage facility operators can better manage their operations and financial strategies in line with current tax laws.
For detailed guidance and further information, businesses should refer to the official HMRC documentation and possibly consult with tax professionals to navigate the specifics of these updates effectively.
How a VAT Accountant Can Help You With VAT for Storage Facilities
Understanding VAT for Storage Facilities
Value Added Tax (VAT) is an integral aspect of the financial operations of businesses in the UK, particularly those involving storage facilities. Navigating VAT regulations can be complex, especially considering the specific rules and rates applicable to different types of storage services. This is where the expertise of a VAT accountant becomes invaluable. A VAT accountant specializes in the nuances of VAT laws and can guide businesses through the labyrinth of tax regulations, ensuring compliance and optimizing financial strategies.
The Role of a VAT Accountant
Expert Guidance on VAT Rates: VAT rates for storage facilities in the UK can vary. The standard rate is usually 20%, but certain storage facilities, such as self-storage units, cold storage for food, and facilities for caravans and boats, may be eligible for a reduced rate of 5%. A VAT accountant can help identify the correct VAT rate applicable to your storage facility, ensuring that you are not overpaying or undercharging VAT.
Navigating Complex VAT Regulations: VAT regulations for storage facilities are not always straightforward. For instance, the provision of storage in a fully enclosed building or container typically requires VAT to be charged, while open spaces might be exempt. A VAT accountant can help you understand these intricacies and apply the correct VAT treatment to your storage services.
Handling VAT Registration and Compliance: For storage facilities with a turnover exceeding £85,000, VAT registration is mandatory. A VAT accountant can assist with the registration process, handle the necessary paperwork, and ensure that your business remains compliant with ongoing VAT obligations. They can also advise on the benefits and implications of voluntary VAT registration for businesses below this threshold.
Advisory on VAT Exemptions and Reduced Rates: Certain goods stored, like medical supplies or exported items, might qualify for VAT exemptions or reduced rates. A VAT accountant can provide advice on these exemptions and help structure your billing and documentation processes to accurately reflect these conditions.
Assistance with VAT Returns and Record-Keeping: Submitting accurate VAT returns is crucial to avoid penalties. A VAT accountant ensures that your VAT returns are accurate and submitted on time. They also help in maintaining detailed records, which is essential for VAT audits and queries from HM Revenue & Customs (HMRC).
Strategic Planning and Financial Analysis: Beyond compliance, a VAT accountant can offer strategic advice to optimize your tax position. This includes evaluating the impact of VAT on pricing strategies, cash flow, and overall business operations. They can also provide insights into potential tax savings and efficient financial planning.
Guidance for Rural Businesses and Special Cases: For rural businesses or those with unique storage arrangements, VAT treatment can be particularly challenging. A VAT accountant can offer specialized advice tailored to these situations, ensuring that the VAT regime applied is the most beneficial and compliant.
Support During VAT Audits and Disputes: In the event of a VAT audit or dispute with HMRC, having a VAT accountant by your side can be crucial. They can represent your business, prepare the necessary documentation, and provide expert representation to resolve disputes effectively.
The Benefits of Engaging a VAT Accountant
Peace of Mind: With a VAT accountant, you can have peace of mind knowing that your VAT affairs are in order, allowing you to focus on running your business.
Cost Savings: By ensuring accurate VAT application, you avoid overpayment of tax and potential fines for non-compliance, leading to significant cost savings.
Time Efficiency: Delegating VAT management to an expert saves time and resources that can be better utilized in other areas of your business.
Informed Decision Making: A VAT accountant provides insights and data that aid in making informed business decisions, especially in financial planning and growth strategies.
Adaptability to Changes in VAT Laws: VAT laws are subject to change, and a VAT accountant ensures your business remains adaptable and compliant with any new regulations.
In conclusion, a VAT accountant plays a critical role in navigating the complexities of VAT for storage facilities in the UK. Their expertise not only ensures compliance and avoids penalties but also contributes to the overall financial health and strategic planning of your business. Engaging a VAT accountant is a wise investment for any business involved in storage services, providing clarity, efficiency, and financial optimization in the realm of VAT management.
20 Most Important FAQs about “VAT for Storage Facilities in the UK"
1. Q: What was the VAT exemption status for storage facilities before October 2012?
A: Before 1 October 2012, the provision of a clearly defined space used for storage and meeting the conditions of a licence to occupy land was exempt from VAT. However, owners could opt to tax their land, making the supply taxable at the standard VAT rate.
2. Q: How did the VAT treatment for storage facilities change in October 2012?
A: The Finance Act 2012 required the standard rate of VAT to be applied to supplies of storage facilities from 1 October 2012. This was to ensure consistent taxation across different storage providers and address avoidance within the storage sector.
3. Q: Is open-air storage space subject to VAT?
A: The provision of open-air storage space, or space within facilities not fully enclosed, is not a taxable supply on this basis. However, it could be taxable for other reasons, such as if an option to tax over the land is exercised.
4. Q: How does the VAT treatment change if the customer's use of the premises changes?
A: The VAT treatment can change if the customer changes how they use the premises. For example, an exempt from VAT lease of office space can become taxable at the standard rate of VAT if the office is used solely for storage.
5. Q: Are there any exceptions to VAT rules for storage of live animals?
A: Yes, the storage of live animals is specifically excluded from automatically being subject to VAT under the self-storage rules.
6. Q: What is the VAT implication for farmers letting out barns for storage?
A: If a farmer is VAT registered and lets out barns for storage, this income is subject to VAT, even if the farmer has not elected to opt to tax the facility.
7. Q: How does self-storage impact VAT treatment?
A: For VAT purposes, self-storage simply means storage. If a facility is used only for storing goods, VAT is chargeable. However, if storage is ancillary to another business activity in the facility, it may not be considered a storage supply, impacting the VAT treatment.
8. Q: Does the landlord's intent affect the VAT treatment of a storage facility?
A: The actual use of a facility for storage purposes is the determining factor with respect to VAT treatment, not the landlord's intended use. The supplier is responsible for knowing whether their tenant is storing goods in the facility.
9. Q: Are there any specific contractual terms that can influence VAT treatment for storage?
A: Yes, contractual terms can influence VAT treatment. If a rental agreement does not specify the allowance or prohibition of storage use, there is an expectation that the landlord should know if the facility is being used for storage purposes by the tenant.
10. Q: What should be considered when determining the VAT regime for a storage facility?
A: The starting point is the 'facility' itself. For income to be subject to VAT, the storage has to be provided in a fully enclosed building, unit, or container. Open-air plots of land and non-fully enclosed structures like Dutch barns are generally exempt.
11. Q: Can VAT be reclaimed on costs incurred in repairing and maintaining storage facilities?
A: Yes, VAT on costs incurred in repairing, maintaining, developing, and improving a storage facility can be reclaimed in full without needing to opt to tax, especially if the facility is developed with storage in mind.
12. Q: What are the implications of opting to tax land or property for storage purposes?
A: Opting to tax land or property can remove some uncertainty regarding VAT treatment, but it might not always be the best option. It can sometimes be a burden for the owner when selling the property in the future.
13. Q: Is VAT charged on additional services provided by storage facilities?
A: Yes, VAT must be charged on additional services such as packing or transportation, along with the storage charges.
14. Q: Are there any reduced VAT rates applicable to storage facilities?
A: Yes, a reduced VAT rate of 5% applies to certain types of storage facilities, including self-storage facilities, cold storage for food, and storage facilities for caravans and boats.
15. Q: How does VAT registration impact storage facilities?
A: Storage facilities with a turnover of more than £85,000 must register for VAT and charge VAT on their services. Those with lower turnover may choose to register voluntarily.
16. Q: What constitutes a taxable supply in the context of storage facilities?
A: A taxable supply in the context of storage facilities typically involves the provision of storage in a fully enclosed building, unit, or container.
17. Q: What are the VAT rules for storage facilities used by charities?
A: There are exceptions to VAT rules when storage facilities are supplied to connected persons and to charities, which may affect the VAT treatment.
18. Q: How does the lease's terms affect the VAT treatment for storage facilities?
A: The terms of the lease can influence the VAT treatment. If the lease does not specifically allow or prohibit storage use, it's expected that the landlord knows the use of the leased space for storage purposes.
19. Q: What are the VAT implications for storage facilities used for export purposes?
A: If a storage facility is used for storing goods intended for export outside of the EU, the storage provider may be able to zero-rate their fees for VAT purposes.
20. Q: Are there any VAT exemptions for storage facilities storing certain goods?
A: Yes, certain goods, such as certain food items, medical equipment, and children's clothing, if stored in a storage facility, may be exempt from VAT on the fees.
These FAQs provide a comprehensive understanding of the VAT rules and considerations for storage facilities in the UK, highlighting the complexities and specific scenarios that can influence VAT treatment.