Budget 2012: Self-storage companies warn over closure of VAT loopholes Big Yellow and Safestore said they will have to start charging customers VAT on storage if proposals from the Treasury become law from October 1. Shares in Big Yellow, Safestore and smaller rival Lok'nStore slumped today as investors digested the Budget. Big Yellow fell 11.90, or 4pc, to 298.10p, despite already shedding 4pc on Wednesday, while Safestore fell 1pc and Lok'nStore 2pc. However, the companies said they will "actively engage" in discussions with the Government and hope to stop the tax increase. Analysts at Investec said the Budget proposals have a "lack of detail" and the self-storage industry is "well placed to mount a successful defence against the change." The analysts said: "There are repercussions if self storage is to be classified as something other than commercial property space, and this is not scoped out in the Budget." At present, the use of self-storage units is exempt from VAT because it is treated as a licence to occupy land, similar to commercial property rents. In a statement, Lok'nStore said it would be unaffected by the closure of the loophole because it considers itself a trading company, not a property company, and has always charged VAT. Harm Meijer, property analyst at JP Morgan, said Big Yellow and Safestore could lose a year of rental growth from the tax rise. Mr Meijer forecast Big Yellow's annual profits will be reduced by £5m if it did not raise prices and also recovered £2m of VAT on operating costs. However, the company will also be able to claim back VAT on capital expenditure, which could be between £15m and £20m. He said: "Overall, the fact that Big Yellow has pricing power, the industry seems to do well, only the profit from domestic customers is impacted and the company would be able to claim VAT back from capital expenditure, make us believe that the impact of this proposal would be negative, but not very negative." Big Yellow and Safestore's contracts allow them to increase rents at 28 days' notice. Safestore said it expects "to adapt our business model to mitigate the impact of the proposed tax changes."