HMRC has issued a new Policy paper entitled ‘Lennartz mechanism and VAT accounting’. 

The VAT rules which allowed for full VAT recovery on the purchase of certain business assets used for both business and private or non-business use changed with effect from 1 January 2011. 

Previously a business using the ‘Lennartz mechanism’ could opt to recover all the input tax (subject to any partial exemption restriction) on the purchase of immovable property, boats and aircrafts up-front and make subsequent output tax adjustments to reflect any private or non-business use. From 1 January 2011, VAT recovery on the purchase of assets was restricted to the business use of the asset. 

The new Policy Paper is relevant to businesses who chose to continue to use the Lennartz mechanism if they entered into an arrangement before 22 January 2010. The paper has been issued to clarify HMRC’s understanding of Finance (No 3) Act 2010, Schedule 8, paragraph 4. This law provides that, in relevant circumstances, businesses who chose to retain the VAT recovered under the rules of the Lennartz mechanism before 22 January 2010, must continue to account for output tax on the non-business use of the asset.

Source: New feed