Font Size

HM Revenue and Customs Brief 02/10


HM Revenue and Customs -Tax Authorities

Tax Articles
Submit Articles   Back to Articles

Issued 22 January 2010

VAT: Lennartz accounting - new policy following ECJ case


Last year, the ECJ in the case of Vereniging Noordelijke Land-en Tuinbouw Organisatie v Staatssecretaris van Financien (C-515/07) – VNLTO - considered whether or not Lennartz accounting can be used by a taxpayer who engages in activities that are not within the scope of VAT. As a result of this judgment, it is now clear that EU VAT legislation does not give, and has never given, a right to use Lennartz accounting in circumstances such as those of the VNLTO case.

Who should read this?

This Brief brings UK VAT policy in line with this judgment and should be read by anyone currently using, or intending to use, Lennartz accounting. It means that Lennartz accounting will only be available in the specific, limited circumstances set out below.

HMRC's policy on Lennartz accounting as set out in Information Sheet 14/07 now has only limited application and should be read in conjunction with this Brief.


Guidance in Information Sheet 14/07 states that, where a taxable person incurs VAT on the cost of goods intended solely for business purposes, there is an entitlement to deduct the input tax incurred to the extent that it is used for making taxable supplies (or other supplies carrying a right to input tax deduction under section 26 of the VAT Act 1994). See paragraph 2.4 of Information Sheet 14/07 for the types of goods this policy applies to.

If goods are used for both business and private/non-business purposes, there is a choice about how to treat them for VAT purposes, which must be made at the time they are acquired, namely:

  • as a wholly non-business or private asset, in which case the VAT is not deductible;
  • as a part business, part non-business asset, in which case the VAT incurred is only deductible to the extent that it relates to the taxable business activities (section 24(5) of the VAT Act 1994); or
  • as a wholly business asset ( the 'Lennartz' approach) in which case the VAT incurred is treated as input tax and is deductible in full, subject to any partial exemption restriction; however, output tax must then be declared in so far as the goods are used for private/non-business purposes.

Lennartz accounting is not therefore available in cases where goods (including services used to create goods) are used wholly for business purposes.

ECJ decision

The case before the ECJ concerned an association - VNLTO - that promotes the interests of the agricultural sector. Its members, who are traders in that sector, pay a membership subscription to it, the greater part of which goes towards activities designed to promote their general interests. In addition to promoting those interests, VNLTO provides a number of individual services to its members for which it charges a fee.

Even though the activities of promoting members' interests are not subject to VAT, the ECJ held that this did not mean they were non-business activities. The ECJ stated that 'business' in the context of Lennartz accounting extends beyond economic activities giving rise to supplies within the scope of VAT. It also includes use for any activity that forms part of the wider purpose of the taxable person's undertaking or enterprise, even those activities that are not economic activities (such as those outside the scope of VAT), and that are not normally regarded as 'business' for UK VAT purposes.


From 22 January 2010, Lennartz accounting will only be available where:

(a) the goods are used in part for making supplies in the course of an economic activity that give a right to input VAT deduction (broadly, taxable supplies, supplies that would be taxable if made in the UK, or certain financial and insurance supplies to non-EC customers); and

(b) they are also used in part for the private purposes of the trader or his staff, or, exceptionally, for other uses which are wholly outside the purposes of the taxpayer's enterprise or undertaking.

From that date, where Lennartz accounting is not available, and goods are used (or to be used) for both economic activities and non-economic business activities, subject to the transitional provisions outlined below, the VAT incurred must be apportioned between these different activities on the basis of use (or intended use). The VAT attributed to the economic activities is input tax and is recoverable to the extent that the economic activities give rise to supplies with a right to input VAT deduction. The VAT attributed to the non-economic business activities is not input tax and cannot be recovered.

Taxpayers with assets subject to existing Lennartz accounting arrangements

Taxpayers for whom Lennartz accounting has, strictly speaking, never been available would normally be expected to unravel the mechanism and adjust both any input tax claimed and any output tax accounted for accordingly.

However, HMRC is committed to easing the administrative and financial burden on taxpayers who have already embarked on, and continue to operate, Lennartz accounting under HMRC's old policy.

Consequently, where a taxpayer has applied Lennartz accounting on the basis of HMRC's pre-VNLTO understanding of the law, the taxpayer may opt to continue using Lennartz accounting in respect of the assets concerned.

Taxpayers exercising this option must honour the full, ongoing commitment to account for output tax imposed under Lennartz accounting and HMRC will take action if a taxpayer fails to do so.

Those taxpayers who do not exercise this option must unravel the Lennartz accounting mechanism by adjusting both their output tax and corresponding input tax. They should write to their Client Relationship Manager within HMRC or the HMRC Written Enquiries Section at Alexander House, Victoria Avenue, Southend. SS99 1BD to discuss and agree a fair way of doing so. HMRC will not accept one-sided claims for repayment of the output tax only.

Taxpayers who have committed to projects anticipating the availability of Lennartz accounting

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.

However, HMRC will consider claims from taxpayers who have already entered into binding commitments for projects on the understanding that Lennartz accounting will be available. Taxpayers should contact HMRC at the addresses above.

Fleming claims

Some taxpayers (following the House of Lords’ judgments in the cases of Fleming and Condé Nast) have submitted “Fleming” claims for Lennartz treatment for assets where VAT was incurred in accounting periods ending before 1 May 1997. No decisions on these claims were taken pending the issuing of this announcement. These claims will now be reviewed and, where appropriate, rejected if the taxpayer had not taken up the option to use Lennartz accounting at the time the input tax was incurred (where this was available) and/or where the VNLTO decision means that the claimants were not entitled to use Lennartz accounting as there was no EU law right to do so.

Further information

For further information please contact the Helpline on 0845 010 9000.

About the Author

© Crown Copyright 2010.

A licence is needed to reproduce this article and has been republished for educational / informational purposes only. Article reproduced by permission of HM Revenue & Customs under the terms of a Click-Use Licence. Tax briefs are updated regularly and may be out of date at time of reading.

Follow us @Scopulus_News

Article Published/Sorted/Amended on Scopulus 2010-01-23 15:29:20 in Tax Articles

All Articles

Copyright © 2004-2021 Scopulus Limited. All rights reserved.