VAT: Lennartz accounting: restricting application and securing revenue
The measure
Under the so called 'Lennartz mechanism' VAT on immovable property, boats and
aircraft could be recovered in full, notwithstanding that the asset is to be
used for both business and non-business (or private) purposes. VAT is then
effectively paid back over a number of years to reflect the non-business (or
private) use.
These changes, which were previously announced in Budget 2010 will mean that VAT
will only be recoverable to the extent that the asset is used for business
purposes. Changes in the degree of private use in subsequent years will result
in VAT adjustments.
Pre-existing Lennartz arrangements will be allowed to continue at the taxpayer's
choice but the taxpayer will be legally required to continue accounting for VAT
on non-business or private use.
Who will be affected?
Businesses which use assets such as buildings, boats and aircraft for both
business and private purposes.
Certain further and higher education institutions and charities also use the
Lennartz accounting mechanism for certain assets and will be obliged to continue
for those assets.
When?
The changes will apply from 1 January 2011.
The European Law change that underlies this change in the UK law effectively reverses a long standing European Court of Justice judgment. Taxpayers will lose the benefit of a cash flow saving previously available when they buy assets to be used for both business and non-business/private purposes.
