‘Lennartz’ VAT accounting changes
In my blog dated 26 November 2007 I explained how to obtain a VAT cash flow benefit by using the 'Lennartz' accounting principle, when purchasing certain assets used for a mixture of business/private or non business purposes.
Following a recent ECJ judgement, HMRC issued a Business brief 02/10 stating that this VAT treatment would only be allowed in very limited circumstances. The recent Budget announced that the legislation will be amended with effect from 1 January 2011.
The only assets which will qualify for Lennartz treatment will be those used for a mixture of private purposes and purposes 'other than for the main economic purpose'.
For charities, this change means that buildings which are used for the primary purpose of the organisation will not qualify for this treatment, even if this is a non business purpose. VAT recovery will be restricted to the extent that the building is used for taxable business purposes (ie a proportion of the VAT paid will be recoverable).
Jane Stacey is a VAT adviser and a senior manager at Mercer & Hole. The views given in this blog are personal to the author, if you would like to discuss the contents of this post with Jane you can call her on 01727 869141.
Date: 9th April, 2010
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