VATVAL12360 - Specific applications: Opticians and dispensers of hearing-aids: Apportionment

An apportionment is required when an optician makes a single charge for supplies of spectacles and dispensing services. No account should be taken of other supplies that are made in return for their own separate charges, such as sight tests. The apportionment is required by virtue of section 19(4) of the VAT Act 1994, which demands a “proper attribution” of value between any supplies that are made in return for a single charge. Nothing in the Act requires any particular method of apportionment to be used.

It is important to note that section 19(4) does not apply where Separately Disclosed Charges are being operated. In that instance section 19(2) applies.

Before 1 October 2020, opticians choosing to use apportionment required their method to be approved by HMRC, to ensure that it produced a fair and accurate result. There was no favoured method on HMRC’s part, but a “full cost apportionment method” was included as an example in both internal and external guidance.

Since 1 October 2020, opticians no longer require prior approval from HMRC before using an apportionment method. This brings opticians into line with output tax apportionments used in other sectors.

Any method may be used, but it must be attributable to verifiable data, and based on an accurate representation of the business practices of the individual optician. It is the responsibility of each optician to ensure that this is the case.

VATVAL12400 contains a worked example of a full cost apportionment method, as an example of the calculations that may be used and what should be included in them. However, this does not detract from the fact that it is opticians’ responsibility to devise a method which is appropriate to their business.

New businesses

When a new optician’s practice opens, it is not possible to immediately perform an accurate apportionment of the charges made for spectacles and dispensing, particularly if the apportionment method adopted is based upon costs. New practices should therefore use a provisional basis for apportionment which they consider fair and reasonable. At the end of the first year’s trading it will be possible to revise the apportionment method in light of the costs actually incurred