Following a recent ECJ ruling, NHS bodies may now have the opportunity to recover a higher proportion of VAT at the outset on capital schemes which have a mixture of business and non-business use.
The decision which has been accepted by Customs allows a VAT registered body which has both business and non-business activities to reclaim all the VAT ‘up front’ where some business use is made and then account for VAT on the non-business use of the asset over the economic lifecycle (as opposed to apportioning the VAT incurred between business and non-business use). This is known as the ‘Lennartz’ principle.
Customs have announced in Business Brief 15/05 that they would require the output tax charged under the Lennartz principle to be calculated over a maximum 20 year period based on straight line depreciation.
The scope for VAT recovery applies to schemes commenced from the date of Customs’ Business Brief (9 August 2005). There may also be additional scope to retrospectively claim VAT on schemes commenced since 9 April 2003 provided the claim is made by 9 February 2006.