Understand your VAT! Part 3
Part 3 by Usman Sial, Opticians Specialist Accountant
This is the third and final part of a series of articles explaining VAT systems for opticians. In the previous article, we explained the differences between the two methodologies that opticians can use and how they can improve their VAT recoverability.
In this article, we will explain if opticians can recover any historically overpaid VAT from revenue and customs and if they can recover all the input VAT incurred on purchases and expenses, including building refurbishment and equipment.
After improving practice profit by using one of two different VAT methodologies, the next common question we received from practitioners are;
Can I recover output VAT I may have overcharged historically?
Well, as per varies tribunal decisions, an optician has a legal right to correct his/her VAT return retrospectively for four year’s period. However, any retrospection can only be applied under FCA methodology; it is not possible under SDC. If optician can show that revisited calculations allow fairer apportionment HMRC is willing to accept a claim based on the revisited four years retrospective period.
However, there is a certain way of claiming of VAT which done incorrectly may prejudice your application.
(Before undertaking claim it is important you take professional advice on this issues)
Can I recover all my VAT on purchases and expenses?
We often receive a question from opticians that, “Can I recover all of my input tax on purchases and expenses?”
Well, our answer is always, it depends.
Where VAT on exempt supplies is zero, at the same time all the related input VAT is potentially irrecoverable.
Unless irrecoverable VAT is below the de-minimise limit, it is a limit of £7500 per year (or £625 per month)
If your related input tax for exempt supply is below this limit, you can claim full VAT back, but if you exceed this limit, you lose all of it.
Therefore, it is important to seek professional advice when to buy expensive equipment’s or undertaking major refurbishment at your practice.
We believe, over time the annual de-minimise rate of £7500 has eroded. Current estimate suggests that if the de-minimise rate increased with inflation over the year, the current rate of de-minimise would be over £22000. Therefore, with this in mind, the number of opticians exceeding de-minimise has increased significantly over the period.
When is leasing of an asset beneficial for VAT recovery purposes?
Another question is, whether we should buy asset outright or lease it. Well, it also depends on the de-minimise limit. If by breaking down the cost of the asset and spread the vat incurred over a number of years, enable the practice to remain de-minimise. Then it is better to lease it. At least you will get your VAT back.
How much VAT can I recover on practice refurbishment cost? (Standard Method)
First of all, it is very important to take professional advice when it comes to refurbishment. One of the reason is to make sure you keep below the de-minimise limit (if possible) and second is, VAT can be complicated when it comes to building work, even one building can have different VAT treatments.
It is possible to claim VAT back on fixture and fittings if they are directly linked to standard-rated supplies — for example, display units, shelving and showcases, fixed mirrors.
But same time it is also possible that you won’t be able to claim a refund on roof repairs,and there are other tax-related matters as far building refurbishment is concerned.
So, better to take professional advice.
Can I use a special Partial Exemption Method other than the Standard Method for determining my input VAT recovery? (Special PE Method)
Currently HMRC only except standard method which is sale based method to determine input VAT recovery. This means the high the exemption on sales the lower the potential of input VAT recovery on general expenditures.
Further contact information:
SIAL Healthcare Accountants (Opticians Specalist Accountants)
Tel: 020 8532 9999