VAT CASES - 27.01.2022

Was supply a property lease or self-storage?

The case. The taxpayer (H) constructed mezzanine floors in a building and then inserted fixed storage pods that could be used to store goods. It leased the pods to investors on a 999-year lease, with a guaranteed return of 8% for the investors. The investors could charge third parties directly for the pods or lease them back to HSCL, who found the customers.

The investors paid a premium for the lease that was registered with the Land Registry. HMRC said that the premium was standard-rated as either a supply of self-storage or moveable plant and issued an assessment in February 2018. H claimed that it had made an exempt supply of land.

The law. The legislation was changed in 2012 so that supplies of self-storage became standard -rated rather than exempt. The intention was to tax end-users for storing their goods. A land supply is usually exempt from VAT, assuming that the landlord or owner has not opted to tax their interest in the property. H had not opted to tax for the building in question.

The decision. The judge agreed with H that the supply was the same as leasing a flat in a block. It was a land supply and exempt from VAT. The contracts confirmed that the investors were paying for an interest in land, and it was necessary to look beyond the physical use of the properties. She also concluded that the pods were “immovable” so it could not be a supply of plant hire. The appeal was allowed.

Key points.The registration of each lease with the Land Registry was significant. The contracts also confirmed that the taxpayer was supplying a lease in part of a building. The case shows that it is important that you consider the contractual issues of any deal, which will usually answer the key VAT question of who is supplying what and to whom.