An agricultural specialist at the UK200Group of independent chartered accountants and lawyers says farmers could face an extra tax bill following changes to VAT rules on self storage.

The alert comes from Tim Watkins of Gloucestershire-based Randall & Payne chartered accountants, a UK200Group member firm, in the wake of last month’s change in the VAT rating on self storage, the letting of space to a third party in which to store their own goods. The rating changed from exempt to the 20 per cent standard rate on 1 October.

Tim said: “Farmers and smallholders are always looking for ways to make their assets work for them, and what better way to use a redundant building to let someone store items, such as a neighbour’s caravan or surplus equipment for a local business? The farmer’s income from self storage had been exempt from VAT but from 1 October, 20 per cent needs to be added to the charge or the charge is deemed to be VAT inclusive, leaving the farmer potentially out of pocket.”

He said problems could also arise if someone has been billed in advance for self storage and the invoice straddled 1 October. Tim said: “If the invoice was raised before 21 March 2012, there is no problem. If it was raised after 21 March 2012, VAT needs to be charged on the part of the invoice covering the period after 1 October. If the farmer cannot charge extra, they will be left bearing the VAT themselves.”

Other issues to consider include: there is an exemption for livestock. If a farmer is ‘storing’ livestock for a third party, there remains no VAT so, for example, livery is VAT-free if space is used for self storage and some other purpose, then the VAT treatment follows the primary part of the supply, i.e. if the main purpose of the space is for self storage, the supply is standard rated at 20 per cent if there are gaps in the time the space is used, the supply remains standard rated if the intention of the third party is to use the building again. Where the use is changed, the VAT treatment can be changed too.

Tim added: “On the face of it, the new rules did not affect the agricultural sector but it is clear that they could have potentially significant implications, and even more so if correct VAT treatment is not applied from 1 October this year. VAT is notoriously complex, so it always makes sense to seek expert advice.”