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HMRC internal manual

VAT Input Tax

Is it input tax: mixed business and private or non-business use

There will be times when a business receives goods and services that it uses or intends to use for both business and non-business or private purposes. The non-business or private purposes can take a number of different forms.

It is possible to buy goods or services and use them for both business and private purposes. For example, a new computer could be used to run the business as well as being used for the private enjoyment of the proprietor or their staff. The same could also be true of telecommunications services.

A non-business purpose need not be private or domestic use. Some businesses, as well as making business supplies, will undertake activities which are not seen as business for VAT purposes. This may be the case even though the activities are not private or domestic in character.

For example a VAT registered charity may make some taxable supplies and also provide certain facilities completely free of charge for charitable reasons. This activity of providing a service for free is likely to be seen as non-business (see VAT Business/Non-Business VBNB20000). That manual includes advice about apportionment for non-business use at VAT Business/Non-Business VBNB30000.

The business must decide how to treat mixed use assets at the time VAT is incurred on purchasing the asset. This will determine the extent to which the business can recover VAT, subject to any business use for making exempt supplies.

For goods other than capital items it is important to distinguish private use, including private use by the business’ staff, from other non-business use. This is because the Lennartz approach to VAT accounting may be available in respect of private use (see VIT25510).

Mixed business and non-business use is excluded from Lennartz accounting. This is because of the ECJ decision in the case of Vereniging Noordelijke Land-en Tuinbouw Organisatie (VNLTO) (see VIT62520). The decision confirmed that the EU VAT legislation that imposes a charge on use of goods other than for business purposes does not apply to use in non-business or charitable activity where that activity is normally undertaken by the organisation.

Capital items are:

  • immoveable property (including construction services)
  • ships, boats or other vessels
  • aircraft