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N3. Override
STANDARD METHOD OVERRIDE​
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General rule ​
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- Attribution differs substantially from extent of use
Attribution calculated on the basis of in period turnover: apply to each period
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"(1) This regulation applies where a taxable person has made an attribution under regulation 101(2)(b) and (d) and the prescribed accounting period does not form part of a longer period, and the attribution differs substantially from one which represents the extent to which the goods or services are used by him or are to be used by him, or a successor of his, in making taxable supplies." (SI 1995/2518, r.107A)
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Attribution calculated using previous longer period recovery rate: apply to each longer period
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"(1) Other than where input tax falls to be attributed under regulation 101(8) or regulation 107(1)(b) or (c), this regulation applies where a taxable person has made an attribution under regulation 107(1)(a) or (d) according to the method specified in regulation 101 and that attribution differs substantially from one which represents the extent to which the goods or services are used by him or are to be used by him, or a successor of his, in making taxable supplies." (SI 1995/2518, r.107B)
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- Account for difference on next return (or final return)
"(2) Where this regulation applies, the taxable person shall calculate the difference and account for it on the return for the first prescribed accounting period next following the prescribed accounting period referred to in paragraph (1) above, except where the Commissioners allow another return to be used for this purpose.
(3) But where a registered person has his registration cancelled at or before the end of the prescribed accounting period referred to in paragraph (1) above, he shall account for any adjustment under this regulation on his final return." (SI 1995/2518, r.107A)
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"(2) Where this regulation applies the taxable person shall—
(a) calculate the difference, and
(b) in addition to any amount required to be included under regulation 107(1)(g), account for the amount so calculated on the return for the first prescribed accounting period next following the longer period or the return for the last prescribed accounting period in the longer period if applicable, except where the Commissioners allow another return to be used for this purpose.
(3) But where a registered person has his registration cancelled at or before the end of a longer period, he shall account for any adjustment under this regulation on his final return." (SI 1995/2518, r.107B)
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- Apply the override before considering the full de minimis exclusion from partial exemption
For the full de minimis exclusion from partial exemption (which is different to the de minimis exclusion from override adjustments dealt with below) see N1. Standard Method.
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"[41] It, therefore, follows from the above analysis of the purpose of the legislation that potential adjustments to the attribution of input tax must be carried out before the de minimus limit is applied so as to ensure a fair and reasonable attribution of input tax to taxable supplies. The statutory method override affects the attribution of input tax to taxable supplies. Thus adopting a purposive construction, it is the Tribunal’s view that the effect of the statutory method override has to be considered before the tax payer treats input tax attributed to exempt supplies as de minimus." (HJ Banks & Company Limited v. HMRC [2010] UKFTT 33 (TC))
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De minimis exclusion from override adjustments (only)​
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- Residual input does not exceeding £25k (group undertakings) or £50k (others) per annum
"(1) Regulations 107A and 107B shall not apply where the amount of input tax falling to be apportioned under regulation 101(2)(d) within the prescribed accounting period referred to in regulation 107A(1), or longer period, as the case may be, does not exceed—
(a)in the case of a person who is a group undertaking in relation to one or more other undertakings (other than undertakings which are treated under sections 43A to 43C of the Act as members of the same group as the person), £25,000 per annum, adjusted in proportion for a period that is not 12 months; or
(b)in the case of any other person, £50,000 per annum, adjusted in proportion for a period that is not 12 months.
(2) For the purposes of paragraph (1) above, “undertaking” and “group undertaking” have the same meaning as in section 1161 of the Companies Act 2006." (SI 1995/2518, r.107E)
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"The references in regulations 107C and 107E to an apportionment under regulation 101(2)(d) in relation to a longer period include cases where the apportionment is made under regulation 107(1)(a) or (d) using the calculation specified in regulation 101(2)(d)." (SI 1995/2518, r.107F)
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Meaning of substantial difference in attribution ​
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- £50k or 50% of the residual input (minimum of £25k)
"For the purposes of regulations 107A and 107B, a difference is substantial if it exceeds—
(a) £50,000; or
(b) 50% of the amount of input tax falling to be apportioned under regulation 101(2)(d) within the prescribed accounting period referred to in regulation 107A(1), or longer period, as the case may be, but is not less than £25,000." (SI 1995/2518, r.107C)
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Successor use/intended use taken into account​
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- Recipient of TOGC
"For the purposes of regulations 107A and 107B a person is the successor of another if he is a person to whom that other person has—
(a)transferred assets of his business by a transfer of that business, or part of it, as a going concern; and
(b)the transfer of the assets is one falling by virtue of an Order under section 5(3) of the Act to be treated as neither a supply of goods nor a supply of services;
and the reference in this regulation to a person’s successor includes references to the successors of his successors through any number of transfers." (SI 1995/2518, r.107D)
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Examples​
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- Sale price not reasonable where taxable properties sold in same condition as purchased but exempt properties were developed
"[56]...The Tribunal, however, agrees with HMRC that the Appellant’s proposal contained an in built distortion by including two separate measures of value, namely that of a fully developed site with that of two undeveloped sites. In the Tribunal’s view the Appellant’s proposal would have carried more weight if it had deducted the construction costs from the value of the new build development. The Appellant argued that it was appropriate to give a higher value to the new build development in the apportionment so as to reflect the premium paid to acquire the land at the rear of the property. The Appellant, however, adduced no evidence to indicate that it gave a higher price for the development land from that given for the commercial buildings. Further the Appellant was able to recoup over 80 per cent of the purchase price for the land by the onward sales of the two commercial properties.
57. The Tribunal prefers the approach of site area adopted by HMRC. The Tribunal considers that site area provides an objective and reasonable measure to represent the extent to which the land was used for taxable supplies." (HJ Banks & Company Limited v. HMRC [2010] UKFTT 33 (TC))
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