The introduction of new VAT rules on self-storage could see farmers face extra tax bills according to agricultural accountants.
New rules introduced from October 1 saw 20% VAT charged on self-storage – the letting of space to a third party in which to store their own goods. Previously self-storage was exempt from VAT.
"On the face of it the new rules did not affect the agricultural sector, however it now seems likely that they will have a serious effect on farmers who store items, such as surplus equipment for a neighbouring farm or business in a redundant building" said Paul Laird of Fish Partnership.
The storing of livestock is exempt from VAT, even if a farmer is “storing” livestock for a third party, this includes livery.
If space is used for a dual purpose, but includes self-storage, then VAT treatment follows the primary part of the supply. I.e. if the main purpose of the space if for self storage, the supply is 20% VAT rated.
"Previously a farmer’s income from self-storage had been exempt from VAT, however from 1 October, 20 per cent needs to be added to the charge or the charge is deemed to be VAT inclusive, potentially leaving that farmer out of pocket."
Paul also warned about implications if someone had been billed for self storage and the invoice straddled the 1 October date.
“If an invoice was raised after 21 March 2012, VAT needs to be charged on the part of the invoice covering the period after 1 October, if it was before this date there is no charge,” he said.
“However, if the farmer cannot charge the extra, they will be left bearing the VAT themselves.”
Farmers should also be wary of other issues that may affect the VAT rating.
If there are gaps between the time the space is used, the supply remains 20% rated, if there is intention from the third party to use the building again. If there is a change in use, this will be reflected in the VAT treatment.
Paul added: “VAT rules are notoriously complex, which is why farmers should seek advice now, particularly those who haven’t applied VAT on self-storage from 1 October.
“Many farmers could be caught out by this new ruling, and potentially face damaging penalties.”
