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HMRC internal manual

VAT Land and Property

Provision of storage facilities (Item 1ka): whether the use of the space is ancillary to the main supply

Where there is a single supply of facilities which are used by the customer for the both the storage of goods and another purpose, the VAT liability follows that of the principal element of the supply in accordance with normal rules. If the principal element of the supply is the provision of storage facilities, then the supply is taxable at the standard rate. Additionally, there is a specific exception where the customer’s use of the structure is ancillary to the main use of the building. In determining what the principal or main use is a realistic approach should be adopted. The following examples may be helpful:

  1. A customer rents a warehouse in which to store goods but also uses a small amount of the space as an office. The whole supply is taxable, as the principal supply is that of space for storage.
  2. A retailer rents a high street shop which includes a stockroom. In some cases, the storage area may be greater that the retail space. However, the commercial reality is that the premises are being used as a shop. The rent payable is accordingly exempt unless the landlord has an effective option to tax.
  3. A delivery service uses a warehouse to sort and process mail, whilst it could be said that the mail is temporarily stored in the premises, the reality is that the facility is used as a postal depot. The rent payable is exempt unless the landlord has an effective option to tax.

These examples are not exhaustive and each case should be considered on its own merits.