High Court to decide Specsavers' VAT exemption case

Specsavers will meet HM Revenue & Customs in the High Court on Wednesday in an attempt to overturn a VAT tribunal decision that could have potential implications for the whole of retail optics.

The appeal relates to a decision by Customs more than two years ago to rescind a 'special method' of partial exemption of VAT based on floor area, used by Specsavers, in favour of the standard method. The special method had been previously agreed by Customs in the late 1990s.

Last April, Specsavers appealed against that decision in the form of a VAT tribunal involving four practices – Banbury Visionplus, Bletchley Specsavers, Eastbourne Visionplus and Lichfield Visionplus. The appeal was, however, dismissed with Specsavers being ordered to pay HMRC's costs.

One VAT specialist told Optician this week the case could cost Specsavers 'millions of pounds', and the hearing had potential implications across retail optics as special methods for partial exemption were widespread.

Marc Bennett, partner at optical finance specialists Alexander Edward Lee, believes that if Specsavers' appeal is dismissed, then HMRC would be able to impose a different method, most likely the standard method, on practices that currently used the floor space-based method.

However, if the appeal was upheld, said Bennett, 'practitioners currently using the standard method would be allowed to implement a special method based on floor space, therefore potentially increasing input tax recovery and reducing their VAT bill.'

Terry Plant, consultant to Birmingham-based consultants VATease, said that if Specsavers failed to reverse the decision it would mean a much decreased rate of VAT recovery on expenditure, not only for the four practices in the case but for all Specsavers practices.

'This is only the start of HMRC's revival of interest in opticians,' he claimed. 'We are aware that they are also "attacking" the apportionment of output tax with regards to the dispensing element of spectacle sales,' said Plant.

'It is a double whammy for opticians with HMRC perceiving there to be both input and output under-declarations.'

Alan Lester, head of finance at the AOP, commented the case was of more interest to the multiples as they were more likely than independent practices to use exemption methods based on floor area.

HMRC and Specsavers declined to comment on the case until after a verdict had been reached.