Storage
Since October 2012 the letting of space for storage is VAT standard rated. A building used for storage by the customer will attract VAT at 20% including say when hay, silage or vehicles are stored. The building does not have to be designed as a storage facility, but the use of the building for storing goods makes the supply standard rated. If say 3 units or distinct buildings are let to the same customer, and one unit only is used for storage, the lease for that unit only will be standard rated, whilst the lease on the other units will be VAT exempt, unless an option to tax has been made. The storage of customers livestock, including basic livery, is not treated as storage, and the supply is a VAT exempt right over land. The farmer is responsible for checking on the use made by their customer of the building.
Cottages
If the cottages are holiday accommodation, the income is standard rated. The HMRC definition is that the cottage must be advertised as holiday accommodation, and is suitable for holiday or leisure use. The tenant must not be able to reside in the cottage throughout the year and it must not be the tenants principal private residence. VAT is fully recoverable on costs including repairs and advertising.
When the cottage is not used as holiday accommodation, a VAT exempt supply of residential accommodation is made. VAT on costs is exempt input tax, not recoverable, unless total exempt VAT of the business is below the partial exemption deminimis limit of £7500 per 12 months.
Barns
Un-refurbished barns are treated as commercial buildings by HMRC. If let to a farmer or let for other commercial use (apart from storage), the default VAT liability of the lease and sale is exempt, a right over land. VAT on costs is exempt input tax, not recoverable, unless below the partial exemption deminimis limit. The barn can be elected to waive exemption, separately from the rest of the farm, or as part of the farm, commonly referred to as an “option to tax”. The option, notified in writing to HMRC, changes the VAT treatment from exempt to standard rated. VAT at 20% to be added to the income and any future sale, but full VAT recovery is allowed on costs.
If barns are converted from commercial to residential use, the onward sale is either zero rated (if a long lease exceeding 21 years is granted or the freehold is sold) or exempt (if a lease of less than 21 years is granted). If a third party building contractor is employed to convert the barn, their supplies of construction services are reduced rate at 5%.
If the barn is converted to residential use for you or your family to occupy, and you are not VAT registered, a claim for VAT recovery can be made under the Do It Yourself Builders VAT scheme, on form VAT 1413C. The converted barn must be used by you or your relatives, and the conversion must have received planning permission. VAT is recoverable on the costs of building materials, subcontracted services but not on professional fees.
