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HMRC internal manual

VAT Input Tax

Legal history: cases about mixed use of assets

Armbrecht 1995 STC 997
Lennartz 1995 STC 514
Vereniging Noordelijke Land-en Tuinbouw Organisatie (VNLTO) 2009 STC 935
Waterschap Zeeuws Vlaanderen 2005 STC 1298

Please note that the following material is not a full summary of the case - it merely highlights the principle referred to in the appropriate section of this manual.

Armbrecht 1995 STC 997

A hotelier sold a guesthouse. Part of the building had been used for business purposes and part for private purposes.

The Court ruled that where a taxable person sold property of which part had been kept for private use the sale of that part was outside the scope of Article 2(1) of the Sixth Directive. The hotelier therefore only had to account for tax on the sale of the part of the guesthouse that had been put to business use.

Lennartz 1995 STC 514

A tax consultant bought a car. At first he used it mainly for private purposes. He did not reclaim input tax on the purchase. When his business use of the car went up he tried to claim part of the input tax.

The Court held that the question of whether input tax was deductible was to be determined solely by reference to the capacity in which the buyer of the goods was acting at the time the goods were bought. Article 20(2) of the Sixth Directive did not itself contain any provisions on the origin of the right to deduct. The Article merely established the procedure for working out adjustments to the initial claim.

So if someone bought goods for private purposes but later used them for business purposes they could not claim input tax. However, the immediate use of the goods for either taxable or exempt supplies was not of itself ‘a condition for the application of Article 20(2).’

The Court held that it was a question of fact whether goods had been bought for the purposes of a business activity. Where goods were bought partly for business reasons and partly for private purposes the business could claim all the input tax. However, it would have to account for output tax on the private use.

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Vereniging Noordelijke Land-en Tuinbouw Organisatie (VNLTO) 2009 STC 935

An organisation claimed input tax on the costs of the general promotion of its members’ interests. The Court was asked to rule on when Articles 6(2) and 17(2) of the Sixth Directive apply. It held that they do not apply to the use of goods and services allocated to the business for the purpose of transactions which are not taxable transactions of the taxable person. This is because the tax on goods and services that relates to transactions that are not taxable cannot be claimed.

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Waterschap Zeeuws Vlaanderen 2005 STC 1298

A water authority arranged for the building of a sewage treatment plant. It later sold the plant under a leaseback arrangement to an associated foundation. The water authority claimed input tax after the sale.

The Court held that a body governed by public law which buys capital goods as a non-taxable person cannot claim the VAT paid on the purchase of those goods if it then sells them.