20 September 2012, Farmers and rural business owners who rent out storage on their land to give an extra income could be hit by changes to VAT rules that come into effect on October 1.

The new rules mean that supplies of self storage will now be subject to the 20 per cent tax, a move that could affect the many rural businesses and farms offer storage facilities and that, until now, have used an exemption to get round the surcharge, warns Christopher D’Olley, a rural partner with Carter Jonas in Winchester.

In the March 2012 Budget, Chancellor George Osborne announced that supplies of “discrete areas of land”, previously treated as exempt, would now be liable to VAT. It means self storage facilities are embraced by the change and this could affect farmers and rural businesses with empty yards who have rented out space or containers to individuals with sole access to it. As the charging of VAT was optional, many operators chose not to do so.

Now all businesses that are at or above the VAT threshold of £77,000 turnover in 12 months and supply storage as part or all of their activities must levy the tax on storage customers.

At the time the change was announced, HM Revenue and Customs thought that only around 30 per cent of self storage businesses were registered and charging VAT. Companies that opt to tax are able to reclaim VAT on the cost of constructing or purchasing their facility.

Many farmers have seen this as a useful extra source of income but they cannot afford to ignore the rule change. HMRC estimates that an extra £15 million tax will be raised in the current year, increasing to more than £35 million by 2015-16. Businesses registered for VAT that rent storage may be able to reclaim the tax but it could mean a rise in costs for private individuals using storage space, for instance caravan and motorhome owners. They may be tempted to move elsewhere to smaller facilities and avoid the 20 per cent rise in their costs which could hit some rural incomes.

Farmers who have not yet acted to register should ensure they do so and, where already registered, should add VAT to their charges from October 1.