Sale of storage pods to investors is exempt supply

In Harley Scott Commercial Ltd v HMRC [2021] TC08299, the First Tier Tribunal (FTT) allowed the taxpayer's appeal.  The supply of Store Pods to investors was the exempt supply of a building and not the supply of storage facilities which would have been standard rated.

• Harley Scott Commercial Ltd (Formerly Store First Midlands Limited) (the taxpayer) acquired a building on 4 December 2014 which it did not Opt to tax. 
• Third-party contractors were engaged to fit out the building as a self-storage facility.
• This included the installation of Storage Pods, which used the floor and ceiling of the building and had single sheet metal walls.
• The taxpayer granted long leases over the Storage Pods to investors which included individuals and pension funds. These investments were guaranteed a return of 8%.
• The vast majority of the investors leased back the Storage Pod to the taxpayer who paid them rent which provided the investment return.
• The taxpayer then sought to find customers to use the units for storage. This supply also included office facilities, conference rooms, internet, car parking and security facilities.
• The taxpayer contended that the supply of the Store Pods to the investors was exempt for VAT purposes as the supply was of part of a building.
• HMRC issued VAT Best judgement assessments contending that the supply of Storage Pods to investors was the supply of storage facilities and was taxable at the standard rate.
• Following the conclusion of a review that supported HMRC’s assessments, an Appeal was made to the FTT.

The FTT allowed the appeal finding:

• Information provided to HMRC by the taxpayer which contained a typographical error did not give HMRC enough information to raise the best judgement assessment. It was only after this error was confirmed and corrected that HMRC's time limit to raise the assessment started. As a result, earlier HMRC assessments were not out of time.
• The whole circumstances of the supply needed to be considered.
• The provision of additional services were ancillary and did not affect the characterisation of the Store Pods.
• The FTT accepted the taxpayer’s contention that the Store Pods were immoveable.
  • The Store Pods looked like rooms in a building.
  • The long leases were registered with the land registry equating to the long lease of a flat. To remove the Store Pod would be to destroy one's own asset.
  • They would be impossible to move without affecting adjoining Store Pods.
• The investment documentation showed that the investors were suppliers of self-storage rather than end-users.
• The clear intention of the taxpayer and the investors was to obtain an interest in a building that could be utilised to generate income.
• The supply was part of a building and therefore exempt from VAT.
• This was consistent with the stated aim of the legislation, that the provision of storage to an end-user is standard rated, but the supply of premises for the storage of goods is an exempt supply.

Useful guides on this topic

Assessments: Best judgement
What is a 'best judgement' assessment for VAT? When can HMRC raise one? What are your rights of appeal? How do you displace a best judgement assessment?

Opting to tax land and property
What is an option to tax? What do I need to do to opt to tax? What happens if I buy an opted property?

Land & Property VAT (Subscriber guide)
An outline of the VAT treatment of some of the more common supplies of land and property.

Land & Property VAT at a glance
A summary of VAT on common land and property transactions.

How to appeal an HMRC decision
Disagree with a HMRC decision? How to appeal, what type of decision can you appeal and what are your different options when you disagree with HMRC? What are the key steps in making an appeal?

External links

Harley Scott Commercial Ltd v HMRC [2021] TC08299