HMRC have published Revenue and Customs Brief 6 (2022): ‘Lennartz mechanism and VAT accounting’. This explains what VAT registered businesses should do to avoid overpaying VAT where they continue to use the Lennartz mechanism in respect of arrangements entered into before 22 January 2010. 


  • The Lennartz mechanism allows businesses to initially recover input VAT in full on the purchase of Goods where there is both business and private use of those goods.
  • Output VAT is subsequently accounted for on the private use of the goods.

Prior to 22 January 2010, the Lennartz mechanism was also used where the goods purchased were applied to both business and non-business purposes:

  • This changed on 22 January 2010, meaning that since then any VAT incurred must be apportioned, with only the business element being recovered.
  • Businesses using the Lennartz mechanism before 22 January 2010 in respect of goods used for business and non-business purposes were required to unravel the mechanism and adjust the input VAT claimed and output VAT paid accordingly.
  • As a simpler alternative, HMRC also allowed businesses to continue using the Lennartz mechanism under the pre-22 January 2010 rules.
    • Where businesses took advantage of this, Finance (No 3) Act 2010 required that they continue to account for output VAT on the non-business use for the economic life of the asset.

Current position

The legislation in Finance (No 3) Act 2010 was intended to prevent businesses from becoming Unjustly enriched by ensuring where input VAT was reclaimed under the Lennartz mechanism on an asset, output VAT is accounted for on its non-business use over its economic life.

  • The whole cost of the asset should be taken into account when working out the output VAT due. This ensures the non-business use of the goods is not excessively taxed.
  • The Standard rate of VAT increased from 17.5% to 20% in 2011. The non-business use of some goods may have been excessively taxed as a result.

It is now confirmed that businesses are not required to continue to account for output VAT on the non-business use of the asset where the output VAT paid before the end of the economic life of the asset equals the input VAT originally claimed.

  • This is known as the ‘fiscal balance point’.
  • Businesses whose calculations were impacted by the change in the VAT rate may want to review the sum of output VAT they have accounted for.

Useful guides on this topic

Private use of goods: VAT and Lennartz
What is the Lennartz mechanism? How does the Lennartz mechanism assist businesses in accounting for the VAT effect of the non-business use of goods? 

Goods or services for VAT?
What are goods and what are services for VAT? The answer may have an impact on the time of supply, the place of supply and in some cases the rate of the supply. The answer is not always as straightforward as it may seem.

Reclaims and unjust enrichment
When can VAT reclaims be made? What are the time limits? What is unjust enrichment? Why might unjust enrichment prevent HMRC from making VAT repayments? 

External link

Revenue and Customs Brief 6 (2022): Lennartz mechanism and VAT accounting

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