V3.461C Standard method override

V3.461C Standard method override

The standard method described in V3.461 is a comparatively straightforward means of calculating the amount of input tax a business is entitled to recover.

However, despite the longer period adjustment (V3.466), the adjustment on change of intended use (V3.467) and the capital goods scheme (V3.470), there are occasions when the standard method does not produce a result which accurately reflects the use to which the underlying goods and services are put. While this problem may be countered by the use of a special method (subject to the approval of, or the direction by, HMRC – see V3.462), a direction may not be applied retrospectively1.


X Ltd purchases two new commercial buildings, each costing £200,000 plus £40,000 VAT. The time of supply is 1 March; X Ltd's tax year runs to 31 March. X Ltd is a partly exempt business with a residual recovery rate of 91%. However, it intends to commence a new line of business which will give rise to increased exempt supplies in the near future. The exempt turnover is estimated to be equal to the current taxable turnover. The buildings will be used for both taxable and exempt supplies.

X Ltd's recovery rate entitles it to recovery of £72,800 input tax in relation to the buildings. Had X Ltd incurred the input tax relating to the buildings after 31 March, it would have fallen into its next tax year and given rise to an input tax restriction in the region of 50%.

It can be seen from

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