RPT-UPDATE 1-Storage firms braced for impact from VAT changes

Thu Mar 22, 2012 6:27am EDT

* UK to abolish VAT exemption for self storage rental

* Firms to consult with HMRC on proposed changes

LONDON, March 22 (Reuters) - Britain's self storage firms said a proposal in Finance Minister George Osborne's budget to remove a loophole that had enabled them to avoid paying VAT would hit the industry across the UK.

The rental of self storage units is currently exempt from the sales tax, having been treated as a licence to occupy land in the same way as renting commercial property.

The proposals announced by Osborne in Wednesday's budget statement will take effect in October following a consultation between HM Revenue & Customs (HMRC) and the industry.

"This proposed legislative change would have an industry wide impact in the UK," Britain's biggest self storage company Safestore said in a statement on Thursday.

Safestore said it would be able to raise prices to offset the impact of the changes, spelling bad news for some customers.

"Our customer licence agreements allow us to vary pricing with 28 days notice and we would therefore expect to be able to adapt our business model to mitigate the impact of the proposed tax changes," it said.

The company said around 50 percent of its letting space in the UK is taken by business customers which will limit the impact of the changes as businesses will reclaim the VAT. Safestore's Parisian business, which generates a quarter of group revenue, will be unaffected.

Rival Big Yellow said all major self storage firms would be impacted by the changes and that it would consult with the HMRC. It added that 30 percent of its revenue comes from business customers, the vast majority of whom can recover VAT.

Lok 'n' Store said, unlike many in the industry, it had always charged VAT on it storage services and, therefore, the proposed change would have no impact on it.

On Wednesday Osborne said he would look to remove a number of VAT anomalies, including removing exemptions for sports nutrition drinks and hot food from supermarkets such as rotisserie chickens.

Shares in Safestore were down 1.7 percent to 116 pence at 1000 GMT. Big Yellow shares were down 3.2 percent to 300 pence. Shares in Lok 'n' Store were down 1.9 percent to 105.5 pence.