HMRC has published its summary of responses to the VAT: Addressing borderline anomalies consultation. HMRC has made little in the way of changes to the original proposals beyond the headlined pasty tax and caravan changes.
From 1 October 2012 supplies of self-storage facilities will be standard-rated regardless of whether the supplier has exercised its option tax. The Government is pressing ahead with the changes however it should be noted that we understand that some of the larger operators are preparing to mount a legal challenge to the standard rating of self-storage after the law takes effect in October.
In the meantime, the Government has however made a welcome change to the proposals for smaller operators.
A supply of self-storage will be taxable from 1 October, and VAT on associated costs will be recoverable. However, the majority of input tax incurred would have been incurred up front on the fit out of the premises and as the supplies at the time would have been exempt, none of the associated VAT would have been recovered. The Capital Goods Scheme (CGS) will enable businesses that spent more than £250k on refurbishments, construction of a premise or even the cost of the land to revisit the VAT recovery and if the VAT was incurred in the last 10 years then partial recovery will be possible (the CGS looks at use over a 10 year period).
The issue here is that small businesses may have incurred less than £250k on the fit out and would therefore miss out on using the CGS. HMRC has accepted this point and from 1 October, the CGS will be extended, for self-storage facilities only, to cover capital expenditure of less than £250k. This is welcome news for small businesses and it is well worth considering when fit-out/construction costs were incurred and whether there is now an opportunity to recover some of the VAT that was irrecoverable when incurred.
Small Businesses involved in the supply of self-storage facilities should also consider whether the flat rate scheme may be beneficial for them as it is possible to use the flat rate scheme and also recover VAT on capital expenditure.