VATHLT2190 - The services of the medical and paramedical professions: opticians: the supply of spectacles - liability
Historically, HMRC took the view that the supply of dispensing spectacles (i.e. measuring and fitting) was not a separately supplied service but rather an integral element of a single taxable supply of spectacles. As such, there was no separate supply of services (except for the sight test which is and always has been exempt). Further, it was HMRC’s view that dispensing opticians (who are not permitted to carry out eye tests) rarely supplied anything in the nature of exempt professional services.
However, as a result of the High Court decisions in Leightons and Eye-Tech in the late 1990s, dispensing (i.e. the measuring and fitting) is now accepted as a separate supply from the goods (frames and lenses) and is moreover exempt when performed by either an optometrist or a dispensing optician. Thus, if you are faced with determining the liability of the supplies of spectacles you will now have to adopt a three stage approach.
- Determine whether the establishment qualifies for exemption in its own right. Some opticians’ establishments qualify for exemption because they are registered as a body corporate with the General Optical Council under section 9 of the Opticians Act 1989. Other opticians are sole proprietors who are registered as optometrists or dispensing opticians and carry out all the dispensing work themselves. If either of these apply, then an element of the charge made for spectacles will be exempt and so you can move on to (c) below. If neither apply, then you must consider (b).
- Determine whether dispensing is carried out by, or directly supervised by, an optician registered as set out in this guidance. Optical establishments which cannot qualify for exemption under a) above can still supply exempt services if a registered person working within the establishment carries out the dispensing or directly supervises other unregistered staff who do so. Two situations can occur. Firstly, an establishment run by a sole proprietor, partnership or other corporate body may mostly employ unregistered staff but may also have registered staff present on a permanent basis - e.g. as employees, or by virtue of the fact that the sole proprietor, partner or director is registered. Secondly, an establishment may occasionally have no permanent registered staff, but may bring in registered opticians for specified periods on a part time or sub-contractor basis. If either of these situations apply, you must determine exactly what role the registered individual performs. Some registered optometrists will be engaged to carry out sight tests which will include advice on corrective eyewear. Exemption applies to an element of the supply of spectacles, because the registered optometrist carries out dispensing, or he or she directly supervises the unregistered dispensing staff. See VATHLT2600 on determining whether direct supervision takes place
- If the above conditions are satisfied, determine what the total charge for a pair of spectacles relates to, divide it into its standard-rated and exempt elements, and arrive at a fair and reasonable apportionment which can be applied to spectacle sales. One of the methods detailed in Notice 700 The VAT Guide or an alternative Full Cost Apportionment method agreed between the Optical bodies and HMRC can be used, provided it gives a fair and reasonable result and can be supported by valid calculations. A number of optical practices now separately disclose their charges for the supply of goods (frames and lenses) and the supply of the dispensing service. In this case there is no requirement to undertake an apportionment method.
As opticians receive exempt income, you will also need to ensure that their partial exemption calculations are reviewed to determine whether they are fully taxable or whether they are required to restrict their recovery of input tax under the partial exemption rules. Details of partial exemption methods are in PE.
The following tables are provided to assist in determining the liability of the supply of spectacles and what costs should be attributed to each element.
Determining the liability of supplies of spectacles or contact lenses: Basic approach
The flowchart is to be used in conjunction with the guidance on opticians in VATHLT2170. It does not override that guidance, but simply illustrates a logical approach to resolving the issues involved.
Supplies of spectacles: standard rated and exempt elements
Note: This does not override the particular trade agreements reached for the supply of spectacles, but simply sets out the basic principles.
Eye test
| Standard-rated supplies | Exempt supplies |
|---|---|
| Medical tests - includes sight test, slit lamp examination of cornea, keratometry measurement of corneal curvature, and glaucoma test |
Consideration for spectacles - to be apportioned
| Standard-rated supplies | Exempt supplies |
|---|---|
| Sale of spectacles, frames and lenses | Measuring and fitting - includes the fees in relation to the fitting of safety spectacles |
| Spectacle repairs | Further professional advice |
| Accessories, e.g. spectacle cases and chains | Follow up action |
| Producing a report on the condition of the patient’s eye(s) |
Supplies of spectacles: cost attributed to standard-rated and exempt elements
Note: This does not override the particular trade agreements reached for the supply of spectacles, but simply sets out the basic principles.
| Cost attributed to the standard-rated supplies | Costs attributable to exempt supplies of services |
|---|---|
| Purchase of spectacles and accessories and other consuables | Opticians’ remuneration directly attributable to dispensing |
| Delivery of spectacles to sales premises | Sight test equipment |
| Insurance spectacles | Prescription forms |
| Storage costs | |
| Costs of manufacture (where a business makes the spactacles itself) includes materials, labour, storage, manufacturing, equipment, delivery charges to place of manufacture, equipment maintentance costs and equipment overheads | |
| Display equipment | |
| Glazing |