In October last year, HMRC announced it would be implementing simpler processes to be used by opticians and dispensers of hearing aids to account for VAT on their supplies. Opticians that dispense glasses or contact lenses to their customers make two supplies for VAT purposes: the spectacles or lenses themselves, which are taxable at the standard rate, and the supply of dispensing services, which is completely exempt from VAT.
Prior to the changes coming about, opticians would have to account for VAT on the taxable element of their sales by either using separately disclosed charges for each supply, notifying each separate charge to the customer at the time of sale, or by charging a single price to the customer and making a fair and reasonable apportionment of the income between the taxable and exempt elements of the supply, using a method of their choice, which would have to be approved by HMRC.
However, the introduction of Revenue and Customs Brief 14 (2020) outlines that opticians will now be required only to hold a till slip or similar evidence to demonstrate that they are making two separate charges to the customer at the time of supply and that this information is being conveyed to the customer. What is more, those using a method of apportionment will no longer have to seek prior approval from HMRC before operating a method. Importantly, this brings opticians into line with other businesses that apportion VAT on their sales.
So, what methods of apportionment are available? Opticians are eligible to operate either a full-cost apportionment method or separately disclosed charging method. Where an optician makes a single charge for the supply of spectacles and dispensing, then they should be apportioning that in accordance with a method that has been agreed with the local VAT business advice centre. This is known as the full-cost apportionment method. This needs to be reviewed at least every three years, or whenever significant changes have taken place within the business.
When making a separate charge for the spectacles and the dispensing, opticians do not have to perform an appointment of charges for spectacle sales. In such cases, the customer should be able to obtain the supplies separately at the individual specified charges. This can be tricky to navigate, as the dispensing services are usually tied with the supply of the spectacles. HMRC will accept that separate considerations have been established, as long as the charges are stated to all patients at the time of supply.
In short, there can often be a great deal of uncertainty regarding VAT – especially when regulations have recently changed. It is important for both existing and new practices to understand these rules to ensure that they are compliant with them. For those setting up a new practice, it is vital that you understand the VAT liability of your supplies, establish
the value of your dispensing services and ascertain the proportion of VAT you can recover on your set-up and operational costs.
- Tamara Habberley is a senior VAT consultant at The VAT People.