VAT on a cost used partly for business and partly for private or non business purposes is only input tax to the extent of the business use, so most mixed use costs must be apportioned on a fair and reasonable basis. For goods (other than property, boats and aircraft) that are used for business and genuinely private purposes, a business can instead claim all the VAT up front and then pay output tax on the private use each period, which is the Lennartz mechanism.

Why can I not just reclaim all the VAT on something I use privately as well?

VAT is only input tax if the goods or services are obtained for the purposes of the business. HMRC’s VAT Guide (VAT Notice 700, paragraph 4.6.3) says VAT on goods and services used for non business purposes is not input tax and cannot be reclaimed. Paragraph 4.6.6 then sets the rule for anything used both ways: the VAT must be apportioned, following section 32 of the notice.

The decision is made when the VAT is incurred. HMRC’s VAT Input Tax manual (VIT25000) says a business must decide how to treat a mixed use asset at the point it buys it, and that choice fixes how much VAT it can recover.

Two different kinds of non business use need to be kept apart:

  • Private use, meaning personal use by the owner, staff, relatives or friends. This is where the Lennartz option can be available.
  • Other non business activity, such as a charity providing free services as part of its normal work. Lennartz is not available for this, following the VNLTO judgment described in VIT25000 and VIT25550; the VAT must be apportioned.

How do I apportion VAT on a mixed use purchase?

For services bought for business and private purposes, Notice 700 paragraph 32.2.1 says you can treat only part of the VAT as input tax, based on the proportion of business use. Paragraph 32.3 gives the basic arithmetic: if the VAT on a purchase is £100 and a quarter of the use is business, the input tax is £25.

There is no prescribed method. Paragraph 32.4 requires the calculation to be fair and reasonable and capable of justification, and paragraph 32.6 lists the sort of evidence that works in practice:

  • a log of the use of a particular item, such as a boat or aircraft
  • time records showing how staff split their hours between business and non business work
  • floor area measurements for a building used for both
  • an income based ratio for bodies funded partly by grants (paragraph 32.5)

Under section 32, input tax worked out this way is claimed provisionally each VAT period and then adjusted at the end of the VAT year using the full year figures. If the business is also partly exempt, paragraph 32.7 says the business and non business split comes first and the partial exemption calculation is applied afterwards to what is left. Our guide to VAT partial exemption covers that second stage.

For services, VIT25300 confirms that once the VAT has been apportioned there is normally no later adjustment, even if the use changes, unless a fixed non business method with an annual adjustment has been agreed.

What is the Lennartz mechanism?

Lennartz takes its name from a 1991 judgment of the Court of Justice, described in VIT25510. The court held that a business may treat goods bought for mixed business and private use as wholly business assets, take a full and immediate deduction of the VAT, and then account for output tax on the private use as it happens. In UK law the private use charge is a deemed supply under paragraph 5(4) of Schedule 4 to the VAT Act 1994.

The key features, taken from VIT25280 and VIT25510, are:

  • It is optional. The alternative is to treat the private element as outside the business and simply not claim that part of the VAT.
  • It applies only to goods (and services that create eligible goods), not to ordinary services.
  • There must be some business use with a right to deduct. If the only business use is making exempt supplies, it cannot be used.
  • It cannot be used for purchases where input tax is blocked anyway, including most cars and business entertainment. See VAT on cars, vans and fuel.
  • There is no minimum level of business use and no de minimis value.

Which assets are excluded from Lennartz?

From 1 January 2011 the mechanism has not been available for expenditure on immovable property (buildings, civil engineering works and other property interests), ships, boats and other vessels, or aircraft (VIT25550). For these, VAT recovery is limited to the business proportion from the outset. VIT25000 explains that larger items become capital items within the Capital Goods Scheme: property costing £250,000 or more excluding VAT, and vessels and aircraft costing £50,000 or more excluding VAT. Changes in the business and private split of those items are then picked up through scheme adjustments over the adjustment period, which VIT25550 gives as normally ten years for property and five years for ships and aircraft. Our Capital Goods Scheme guide explains those adjustments.

The scope also narrowed from 22 January 2010, when HMRC withdrew Lennartz for mixed business and non business use following the VNLTO judgment. Since then it is only available where the non business element is private use (or, exceptionally, a use wholly outside the purposes of the enterprise).

How is the Lennartz output tax charge calculated?

VIT25540 sets out the formula for the value of the deemed supply in each VAT return period:

A × (C × U%) ÷ B

  • A is the number of months in the return period in which private use happens and which fall within the economic life of the goods.
  • B is the economic life in months, normally sixty (five years), or shorter if the goods will be disposed of sooner.
  • C is the full VAT bearing cost of the goods, excluding the VAT itself.
  • U% is private use as a percentage of total use in the period, based on actual use.

The deemed supplies take place on the last day of each period, so the output tax goes on that period’s return. Charges stop at the end of the economic life, on sale, on disposal for no consideration, on taking the goods into wholly private use, or on deregistration. A sale of a Lennartz asset is a sale of a wholly business asset, so output tax is due on the full selling price. VIT25540 points out that apportioning at the outset can therefore be better for goods that may rise in value, because VAT on a later sale is then due only on the business proportion.

What does that look like in practice?

Illustration only. A sole trader buys a computer for £1,500 plus £300 VAT at the 20% standard rate. They expect a quarter of its use to be private and file quarterly returns.

Approach VAT recovered at purchase Ongoing output tax
Apportionment £225 (75% of £300) None for the private use
Lennartz £300 Each quarter: 3 × (£1,500 × 25%) ÷ 60 = £18.75 value, so £3.75 VAT

If private use stays at 25% for the full sixty months, the Lennartz charges total £75, the same as the VAT left unclaimed under apportionment. The difference is timing, plus the treatment on sale: under Lennartz, VAT is due on the whole sale price, while under apportionment it is due only on the business share. If private use rises later, the Lennartz charge rises with it.

This is a VAT calculation only. The income tax disallowance for the same private use is separate; see private use adjustments for sole traders.

What happens when the use of an asset changes later?

VIT25600 explains the main triggers:

  • If a wholly business asset is permanently taken out of the business, there is a supply of goods under Schedule 4 paragraph 5(1), valued at what it would cost to buy similar goods of the same age and condition.
  • If a business asset is temporarily put to private use with no charge, a private use charge arises under paragraph 5(4), based on the VAT bearing cost of providing the goods.
  • If VAT was recovered on the basis of wholly business use, but the intended use changes before first use, the clawback rules in VAT regulation 108 apply, unless the change is to private use of goods covered by a Lennartz charge.
  • If no VAT was claimed because the original intention was wholly private or non business use, no input tax can ever be recovered, even if the item is later used in the business.

What mistakes does HMRC see most often?

  • Claiming in full and forgetting the charge. A full claim with no quarterly private use output tax is an over claim. Correct it using the rules in Notice 700/45; see correcting VAT errors.
  • Using Lennartz for non business activity. Charities and similar bodies using goods for free core activities must apportion.
  • Using Lennartz on property, boats or aircraft bought on or after 1 January 2011.
  • No usage records. VIT25540 requires records of how the goods have been used, and the private use percentage must reflect actual use period by period.
  • Treating services like goods. Most services must simply be apportioned at the outset.

Mixed use claims are a routine check in a HMRC VAT compliance check, so the method and the evidence behind it should be written down when the purchase is made.

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Sources

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.