Andrew Needham looks at how the standard method override operates.
The standard method override (SMO) is an anti-avoidance measure introduced in 2002 intended to stop VAT being recovered under a standard method calculation, when it did not reflect the intended use of the costs in question. This is where the costs relate to both taxable and exempt supplies but the rate of recovery in the partial exemption year in which they are incurred does not reflect the expected use in a later year.
Although the override was designed primarily as an anti-avoidance measure, it may help a business if the situation is the other way round, i.e., where the standard method is unfavourable to the business because it does not reflect the expected future use of the inputs to support taxable supplies.
How the override works
The override only applies if the adjustment required to correct
