March 14, 2022

Article

A bit of news with a limited audience, but which may help affected parties. These are likely to be charities (other than Academies or others who can reclaim non-business VAT) who bought assets for both business and non-business use before 22 January 2010.

Until 2010, HMRC permitted such charities to initially reclaim VAT in full on the purchase of assets which were to be used for both (taxable) business and non-business purposes, but they were required to pay VAT on the non-business use of the asset over time. In effect, it gave a cashflow benefit.

“Lennartz” was the name of a German tax advisor who successfully argued that he was entitled to reclaim VAT on the purchase of an asset for both businesses and private use, so long as he accounted for output tax on his private use. For a while Lennartz VAT accounting was relatively commonly used by charities, but the Courts later clarified that “private” use outside a business was not the same as a charity which carried on non-business activities within its objects, so as a result Lennartz accounting was restricted to private use from 2010.

HMRC required charities who had already made Lennartz claims to either repay the input VAT claim or carry-on accounting for output VAT for 5 or 10 years, depending on the type of asset.

HMRC has now recognised that, because the standard rate of VAT went up from 17.5% to 20% in 2011, some affected taxpayers may have ended up paying more output VAT than the VAT they reclaimed.

If so, then subject to the 4-year timelimit for adjustments, affected charities may be entitled to reclaim overpaid output tax.

If you think you are impacted by this change, please contact us.

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