Many businesses are unaware that they should be charging VAT at 20% on the rent for buildings let for storage.
The change to standard rating for this service came into force on October 1, 2012 – landlords are responsible for knowing what buildings are being used for and for charging the appropriate VAT.
“Buildings rented for storage covers not only farmers letting to tenants, who may then use it for their own storage, but also farmers storing caravans, horse boxes and so on, for their owners,” said Somerset accountant Robert Stone.
In addition to inspections, landlords should make sure that any paperwork specifies that the tenant must tell them when they start or stop using the space for storage.
If farmers fail to charge the correct VAT, they will be liable for penalties of up to 100 percent of the VAT.
“The penalty is linked to the amount of VAT underpaid and varies from 30% of the VAT not paid (for ‘careless’ behaviour), up to 100% of the VAT not paid (for a case where the VAT is deliberately underpaid),” said Mr Stone.
The amount owing could be reduced by negotiation with HMRC, depending on the circumstances of each case, said Mr Stone. However, there are some exceptions to the rule which include charities and where the storage is ancillary to a main activity such as retailing.
How to… prepare for a VAT inspection