Commentary

BB/15B/05 VAT—supplies of goods and services used by taxable persons for both business and non-business use—ECJ judgment in Case 43/03 P Charles, T S Charles-Tijmens

Part V16 Forms and other HMRC material

BB/15B/05 VAT—supplies of goods and services used by taxable persons for both business and non-business use—ECJ judgment in Case 43/03 P Charles, T S Charles-Tijmens

BB/15B/05 VAT—supplies of goods and services used by taxable persons for both business and non-business use—ECJ judgment in Case 43/03 P Charles, T S Charles-Tijmens

Business Brief, Issue 15. 9 August 2005

This Business Brief announces changes in HM Revenue & Customs policy on the recovery of VAT incurred on certain goods and services supplied to a business and used for business and non-business (including private) purposes. It also incorporates those parts of Business Brief 22/03 issued on 18 November 2003 which remain relevant. Business Brief 22/03 is cancelled with immediate effect.

Reason for policy change

The change of policy follows the judgment of the European Court in the case of P Charles, T S Charles-Tijmens (C-434/03) referred by the Dutch authorities. The Court found that member states cannot use the derogation under art 6(2) of the Sixth VAT Directive to deny taxpayers the right to treat all VAT incurred as input tax when they purchase capital goods for mixed business and private use and allocate the goods wholly to their business. It means the UK legislation introduced in 2003 to prevent the Lennartz mechanism being used for certain construction services, combined with the UK rules for input tax deduction, is ultra vires.

Details of policy change

HMRC accepts that, where businesses incur VAT on certain construction services or on purchasing land, buildings and civil engineering works for mixed business and non-business use, they can now rely on the direct effect of the Sixth VAT Directive to treat all VAT incurred as input tax and,

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