A surprising adverse decision, for charities, has been issued by the European Court of Justice (C-515/07) in the case of VNL. This arose from a referral from the Dutch High Court concerning an organisation that sought to apply the Lennartz approach to all costs, rather than restricting them to capital costs. The Lennartz arrangement allows for VAT on costs relating to a mixture of taxable and non-business activities to be fully recoverable at the outset, with a deemed output tax value being associated, periodically, with any non-business use. HM Revenue & Customs' reluctant policy is to acknowledge that this applies, and the system is technically available for charities to use on capital projects. The Dutch court did not appear to disagree with that, insofar as capital goods were concerned, but sought guidance on non-capital costs.
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