Commentary

V7.443 Apportionment of input tax between business and private use

Part V7 Tax planning
Part V7 Tax planning | Commentary

V7.443 Apportionment of input tax between business and private use

Part V7 Tax planning | Commentary

V7.443 Apportionment of input tax between business and private use

When goods are acquired by a business but only partly used for business purposes (ie meaning there is partly private or non-business use), then the input tax should be apportioned so that credit is only given for the business part of the expense. This principle does not apply to motor cars, as explained at V7.442 above.

There is an alternative approach to dealing with such expenditure, which is to fully reclaim input tax on the initial expenditure, but then account for output tax on the private element over a period of time that reflects the private or non-business use. This approach is known as the Lennartz mechanism, named after a famous European Court case (Lennartz v Finanzamt München III: C-97/90 [1991] ECR I-3795, [1993] 3 CMLR 689, [1995] STC 514 – see below). However, recent changes in the legislation now prevent the use of Lennartz accounting in most cases.

Apportionment of expenses only partly used for business

The legislation does not specify any particular method of input tax apportionment for expenses where there is some non-business or private use.

To continue reading
View the latest version of this document, as well as thousands of others like it, sign in to TolleyLibrary or register for a free trial