Usman Sial: Understand your VAT! Part 1
It is true that VAT law is complex for Opticians, and it requires specialist knowledge with experience to be fully compliant with the law, but at the same time, it is important for an optician to have at least basic understanding of the relevant rules, so you would know how VAT is affecting your business.
As an optician, you would know that an un-diagnosed eye disease can lead to loss of eyesight of the patient. It’s the same with a VAT of your business if accounted incorrectly; it can lead to loss of income and in most cases hefty fines from HMRC. On the other hand, if accounted correctly, can add thousands of pounds to bottom line profit of your business.
In this series of articles, we will try to explain the basic rules of Opticians VAT, in a simple language and most importantly how it can affect the bottom line profit of your practice.
My name is Usman Sial; I am also the author of the book, “How to start and run successfully Optical Practice”.
My colleague Andy Kontakkis is former HMRC inspector and has twenty plus years of experience in dealing with Opticians VAT.
VAT liability for optical business
All dispensing or clinical services provided by qualified opticians are exempt from the VAT, which includes sight test, diabetic screening, pre and post contract care and dispensing of spectacles or contact lenses. Therefore, opticians cannot charge VAT on these services, but same time cannot reclaim VAT on costs associated with the provision of exempt services.
These services are also exempt if provided by unqualified staff but only if directly supervised by a qualified person.
On the other side, the supply of goods is standard-rated for VAT purpose, such as supplies of spectacles, contact lenses, accessories, lens, etc.
When standard-rated and exempt services are combined as mix supply, makes the supply as partially exempt and this is when the process of VAT accounting becomes complex.
Therefore, to determine correct VAT on sales, there are two methodologies that opticians can use to account for their output VAT, the full cost apportionment and the separate disclose charge. It is optician responsibility to use one of these two methods to account for VAT.
An apportionment method is based on the cost of the supplies and in many cases felt to be the most practical methods to use and easier to implement, where separate charges method is harder to implement but once implemented can be most rewarding.
SIAL Healthcare Accountants are renowned specialists in advising dispensing opticians, optometrists and eye care professionals on all aspects of finance, taxation and especially VAT related matters.
For more information please call 020 8532 9999