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In the recent case of Vereniging Noordelijke Land-en Tuinbouw Organisatie v Staatssecretaris van Financien (C-515/07) (VNLTO), the European Court of Justice (ECJ) ruled that Lennartz accounting can be used by a taxpayer only in specific circumstances.
The case concerned an association that looked after the interests of the agricultural sector. Its members paid a membership subscription to it.
Most of this went towards activities designed to promote their general interests, but the association also provided other services to its members for which it charged a fee.
The ECJ held that, although the activities of promoting members’ interests were not subject to VAT, this did not mean they were non-business activities.
‘Business’ in the context of Lennartz accounting includes any activity that is part of the wider purpose of the taxable person’s undertaking.
As a result of the decision, HMRC say EU VAT legislation does allow Lennartz accounting to be used in circumstances such as those of the VNLTO case.
Revenue & Customs Brief 2/10 brings UK VAT policy in line with this judgment. It means that Lennartz accounting will only be available in the specific circumstances summarised below.
From 22 January 2010, Lennartz accounting will only be available where:
- the goods are used partly for making supplies in the course of an economic activity that gives a right to input VAT deduction; and
- they are also used for the private purposes of the trader or his staff.
HMRC say that taxpayers who have applied Lennartz accounting on the basis of HMRC’s previous understanding of the law may continue using Lennartz accounting in respect of the assets concerned.
Otherwise, taxpayers must unravel the Lennartz accounting mechanism by adjusting both their output tax and corresponding input tax and should contact their client relationship manager (CRM) within HMRC to agree a fair way of doing so.
Taxpayers who are not permitted to use Lennartz accounting must apportion VAT incurred for both economic and non-economic activities on the basis of use and intended use from the date of this announcement.
Furthermore, HMRC say they will consider claims from taxpayers who have already entered into binding commitments for projects on the understanding that Lennartz accounting will be available. Again, taxpayers should contact their CRM.
