On 27 July 2020, HMRC updated the guidance in its VAT Government and Public Bodies manual on the VAT treatment of local authority lettings of market stalls and pitches.
The guidance previously opined that lettings of market stalls and pitches were, normally, exempt. However, in a change to this, the guidance now states that the letting of market pitches (including pitches in off-street markets) and shop units and the like is normally a business activity. Therefore, in most cases, it is subject to VAT at the standard rate unless the supply has the characteristics of a licence to occupy land and this is the main (or overarching) supply being made (in which case, it is exempt, subject to an option to tax).
The CIPFA VAT Committee acknowledges that, while the updated guidance is not necessarily wrong, it does mislead by suggesting that market stall rentals should usually be subject to VAT when, in practice, the vast majority of market stall licences are no more than the grant of a right to occupy land – the market stall.
The Committee suggests that the emphasis ought to be reversed to state that, for the most part, when standing a market stall, the trader is likely to be granted no more than a right to occupy land and so such stall rentals are usually exempt from VAT (absent an option to tax) but that each case must be considered on its merits to determine whether the right of occupation is the sole or predominant supply or other elements are included that could render the supply to the trader standard-rated as per Craft Carnival decision.
For anyone unfamiliar with VAT law and past discussions on this and related topics, the guidance, as redrafted, is easy to misunderstand and could lead to assessments being raised that will need to be challenged.