On October 1, 2012, the British government imposed a value-added tax (VAT) of 20 percent for all United Kingdom self-storage operators to charge their rental customers. The new tax is expected to generate more than $56 million by 2015, according to an InsideSelfStorage.com article (“Value-Added Tax Imposed on U.K. Self-Storage Industry Could Generate $56M by 2015”).
George Osborne, British Finance Minister, first introduced the mandatory VAT to the United Kingdom in March 2012. Before the mandatory tax was put into affect, about 30 percent of self storage operators had already been taxing their customers as an option. Accepting the option for tax gave operators the ability to reclaim VAT on the costs of constructing or purchasing their storage facilities (HMRC.gov.uk). The installment of the VAT will now force all self-storage operators to charge their customers with the tax.
“From 1 October 2012, VAT will be extended to reduce anomalies, including the use of self storage—to alight it with other forms of storage—and alterations to listed buildings—to align with the existing VAT treatment of repairs,” said Osborne (qtd. by David Hughes of The Independent). The tax will also apply to other items in the UK society system, including the prices of:
- Hot food from supermarkets
- Soft drinks and sports drinks
- Children’s clothes
- Printed books
According to InsideSelfStorage.com, the new self-storage tax regulation will most likely result in smaller profit margins for UK storage operators and increase the rent prices for rental customers. The tax is expected to pull in about $24 million the first year (2012–2013), then an additional $48 million the second year (2013–2014).
With regards to self-storage, the overall purpose of the VAT is to recognize the industry as to be in the category of “traditional removal companies” by the UK government’s HM Revenue & Customs office (Inside Self Storage). In previous years, self storage units have been exempt from VAT because of their similarity to rented commercial properties.
Not everyone in the UK is content about the execution of the VAT; multiple self-storage companies, worker unions, and more are working together to appeal the tax. According to Roger Baird of ThisIsMoney.co.uk, the VAT could disturb European Union laws because of the tax’s discrimination against various types of commercial landlords. Self storage companies in the UK also argue that the tax will largely reduce property valuations and business profits.
Since October 1, the VAT has influenced the way self-storage industry is used and viewed by customers and competitors. Even though there are some who oppose the tax, it is unsure if there will be a successful appeal against the tax. Because the UK has one of the second-largest self-storage industry (behind the United States), I am excited to see if the VAT will affect storage industries in other countries.
For more information on the VAT, please click here.