It is well known that there is a blanket exemption from VAT for land and property. Landlords and landowners will be all too familiar with the requirement to opt to tax land and property, in order to bring income and outgoings related to property within the VAT provisions.
As from 1 October 2012, the VAT exemption for storage facilities was withdrawn on a blanket basis meaning that VAT will automatically be payable on rent even if the option to tax has not been exercised. The latest VAT information sheet, VAT Information Sheet 10/13 (“IS”) was published on 9 August 2013 and clarified what was intended by the changes which came in on 1 October 2012. The IS states that the new rules apply to suppliers of “any facility which is used, or could potentially be used, by their customers for the storage of goods and customers who rent facilities to store goods”.
The IS clarifies that the changes do not just apply to “self-storage”, which could be narrowly defined as storage just by the end user, but storage by either the supply recipient (customer) or a third party with the customer`s permission if not under a separate supply (for VAT purpose).
The law refers to “facilities for the self-storage of goods” but the guidance states that 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 self-storage of goods, therefore, means any storage of goods by an end user.
Storage use includes physical storage, regardless of the supplier’s intention or any agreement between the parties, or storage implicitly intended from the nature of the premises, or commercial documentation in the absence of other actual use. If premises are used for more than one purpose, the rules on multiple and composite supplies will apply and there are examples contained in the IS.
The main ramification for landlords is that, as the supplier of premises, they need to monitor the use to which the leased premises are put. Premises which are exempt from VAT in the normal case (and in respect of which no VAT election has been made) will become chargeable automatically for VAT in the event that the tenant, or a third party with the tenant’s permission, uses the whole or part of the premises for storage.
As is often the case, an absentee or institutional landlord will not know how the tenant is using the premises or permitting their use. The IS recommends that the landlord obtains and retains written confirmation of the use from the tenant. It will be necessary, in future, for all leases to contain a requirement for the tenant to supply such information, so that the landlord can comply with the law.
Where premises are sub-let, the head landlord will not need to charge VAT (in the absence of an election) but the intermediate landlord may need to begin to charge VAT if the sub-tenant or a third party with the sub-tenant’s consent (not a separate sub-underlessee or sub-licensee) begins to use the premises for storage.
The change in the rules places the obligation upon landlords to ensure that they keep abreast of what the tenant or any third party occupier is doing with the premises in order to avoid falling foul of the VAT rules.