Big Yellow could start charging VAT under Budget proposal

Big Yellow Group, the FTSE 250 self-storage firm, has warned that due to proposals in yesterday's governmental Budget, it may need to charge value-added tax (VAT) to its customers from October 1st 2012.

Shares dropped 4.04% to 297.48p in early trading.

The rental of its self-storage units is currently exempt from VAT "as a licence to occupy land in the same way as the rental of commercial property."

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"HMRC have invited consultation on this proposed change and we, with the help of our tax advisors, intend to actively engage in discussions with them," Big Yellow announced on Thursday morning.

If the proposal does become law, then the company will be forced to charge VAT on its storage income. It already charges VAT on packing materials, while the sale of contents insurance will remain exempt and subject to insurance premium tax. "Currently, we do not recover VAT on our operating costs and these would therefore become recoverable if self storage rents became subject to VAT."

Around 30% of Big Yellow's revenue comes from business customers and so they would not be affected by the change as they would be able to recover VAT.

"Our licence agreement allows us to move customers' rents at 28 days' notice. As an illustration, were we to pass on half of the VAT to our customers and absorb the balance ourselves, this would leave our annualised net operating income on a like for like basis broadly unchanged after taking into account the recovery of VAT on our operating costs."

Big Yellow says that any future implementation of this change would mean that they would require a reimbursement of "a significant sum" under the Capital Goods Scheme which would be subject to agreement with HMRC.

BC