Quirk in Lennartz accounting clarified

HMRC has published a new guidance which explains HMRC’s position on the circumstances when 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 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. When a business chose to continue using Lennartz accounting after 22 January 2010 F(No 3)A 2010 Sch 8 provides that it must continue to account for the output tax for the rest of the economic life of the asset – to ensure output tax is accounted for fully on the private use element.

The...