VAT on Storage

Some farmers with redundant farm buildings now offer storage facilities to increase their business income. 

Although property letting is usually exempt from VAT, it is important to note that standard rate VAT (20%) is chargeable on a supply of space for the storage of goods in a fully enclosed container, building or structure. 

For this purpose ‘storage of goods’ does not include livestock; for which the VAT status depends on the level of service. For example, DIY horse livery (i.e. the provision of un-serviced stabling only) is VAT-exempt, but full or part-serviced livery is standard rated. HMRC regard it as the farmer’s responsibility to establish how the customer uses the space and to keep documentary evidence of that. Typically, this would be covered in the written contract with the customer. 

Option to Tax

Where a farmer cannot ascertain the customer’s use, one way of resolving that uncertainty would be to opt to tax income from that (area of) the property. Opting to tax would make clear that standard-rated VAT must be charged on the income – and on all future rents and sales proceeds for at least 20 years. An option to tax may be commercially disadvantageous for the farmer if the property is let or sold at some future time to a person who is not VAT registered. 

Recovery of Input Tax

Agricultural produce is zero-rated for VAT, and thus treated as a ‘taxable’ output (like standard rated sales), rather than exempt. Therefore, most farmers are able to reclaim input on VAT on nearly all business purchases (except where there is a private use element). However, where there are exempt sales (e.g. property letting), the partial exemption rules must be considered and depending on the individual circumstances, there may be some restriction of the input VAT that can be reclaimed. 

When you make standard-rated sales, you must charge output VAT and pay it across to HMRC. But it is consolation if this avoids having to restrict input VAT recovery.