Charities obliged to repay VAT claimed under ‘Lennartz’

Following the announcement earlier this year that Lennartz accounting will only be available for business assets put to private use and not to those assets put to ‘non-business’ use, March’s Budget contained provisions which ensure that charities that have already adopted the mechanism must continue to make output tax payments on those assets.

Baker Tilly analysis

Following a judgement of the European Court of Justice, HMRC revised its policy this year on the application of Lennartz. This meant that charities can no longer recover VAT on a building to the extent that it will be put to non-business (i.e. charitable) use.  Lennartz was an extremely useful cashflow facilitation measure and the announcement that it could no longer be used by charities was a massive set-back, with the knock-on effect that it could hinder future construction projects.

In detail

The Budget announcement ensures that taxpayers that had already entered into an agreement with HMRC to recover VAT under Lennartz, or who had commenced a construction project or property acquisition believing that Lennartz accounting would be possible, must now make all output tax payments due to HMRC for non-business use over the economic life of the building.  This announcement prevents charities from contesting that output tax is no longer due