In the Courts - Value added tax
Timing is all in the recovery of input tax under Lennartz mechanisim
The Wellcome Trust appealed against a decision of HMRC refusing credit to input tax under Rule 109 of the VAT Regulations 1995, but allowing it subject to capping under Rule 29. The charity had purchased premises in June 1998 and opted to pay tax at the time, waiving their exemption. No input tax was claimed on the purchase price at the time. In November 1999 an adjacent property was purchased and both buildings were then demolished and replaced with a new one. The charity was registered for VAT from January 2000 on the new building and had also previously purchased a further property that was linked to the new one via a tunnel. The option to pay tax on the additional property applied – this new construction was a charity annexe to the new building and the construction service relating to it was zero-rated. There was evidence that there had been a change of intention to the use of the premises first acquired in June 1998. In January 2008, the charity claimed input tax in respect of the whole development under Rule.109.
It was held that the Wellcome Trust was unable to rely on Rule.109, because the intention for the use of the premises was a mix of non-business, business and exempt. It was only entitled in2003, when making its claim to recover input tax under Rule 109 to recover input tax on the proportion of its supplies that were initially attributed to exempt supplies but which subsequently became taxable. The charity could have made a Lennartz claim (see page 14 of this issue), but did not do so, and could have challenged the commissioners’ decision not to apply Lennartz to services. Furthermore it would have been entitled to a deduction of its input tax, including the amount which related to non-business use in relations to the purchase of the original premises if it had made a claim inside the three-year time limit which is a requirement for claims under Rule 29. Unfortunately it did not.
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