VAT – Lennartz and the capital goods scheme
HMRC have issued a Revenue & Customs Brief entitled ‘VAT: changes to Lennartz accounting, the Capital Goods Scheme and legislation for an extra Statutory concession which is to be withdrawn’.
- The Brief confirms that 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 have 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 is restricted only to the proportion of business use of the asset.
- The scope of the Capital Goods Scheme (CGS) has been widened so that it not only caters for changes between taxable and exempt business use but also for changes between business and non-business use of assets.
- The inclusion of ships, boats or other vessels or aircraft costing more than £50,000 has been added to the CGS to help ensure a fair recovery of VAT if use changes.
- An Extra Statutory Concession, that allows VAT recovery under a CGS type calculation by a person who was not registered for VAT at the time a CGS asset was acquired has been withdrawn with effect from 1 January 2011.