Revenue and Customs Brief 6 (2022): Lennartz mechanism and VAT accounting clarifies HMRC’s position on the circumstances under which businesses which chose to keep 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.
Under the Lennartz mechanism, businesses are entitled to recover the full VAT incurred on the purchase of goods used for both business and private purposes at the outset. Output tax must then be accounted for on the private use of the goods. Where a business chose to continue using Lennartz accounting after 22 January 2010 (following changes made by F(No 3)A 2010) it is required to continue to account for the output tax for the rest of the economic life of the asset – thus ensuring output tax is accounted for fully on the private use element.
The brief highlights a potential anomaly caused by the increase in the standard rate of VAT in 2011 from 17.5% to 20%. Output tax charged for the remaining economic life of the asset may have been excessive from the date of the increase. In other words, the output tax paid may exceed the input tax originally claimed.
The brief confirms that, where the output tax paid equals the input tax originally claimed under Lennartz before the end of the economic life of the asset, businesses are not required to continue to account for the output tax on the private use of the asset.
Revenue and Customs Brief 6 (2022): Lennartz mechanism and VAT accounting clarifies HMRC’s position on the circumstances under which businesses which chose to keep 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.
Under the Lennartz mechanism, businesses are entitled to recover the full VAT incurred on the purchase of goods used for both business and private purposes at the outset. Output tax must then be accounted for on the private use of the goods. Where a business chose to continue using Lennartz accounting after 22 January 2010 (following changes made by F(No 3)A 2010) it is required to continue to account for the output tax for the rest of the economic life of the asset – thus ensuring output tax is accounted for fully on the private use element.
The brief highlights a potential anomaly caused by the increase in the standard rate of VAT in 2011 from 17.5% to 20%. Output tax charged for the remaining economic life of the asset may have been excessive from the date of the increase. In other words, the output tax paid may exceed the input tax originally claimed.
The brief confirms that, where the output tax paid equals the input tax originally claimed under Lennartz before the end of the economic life of the asset, businesses are not required to continue to account for the output tax on the private use of the asset.
