When starting your own business, there are a multitude of factors you will need to consider – tax planning (more specifically VAT) being one of them. VAT is already an intimidating prospect to navigate, let alone once you consider sector-specific treatments. The VAT treatment of an optometry practice differs to the standard, so it’s vital that you understand how it works for your business.
We can work alongside you to calculate your business’ VAT without a hitch, ensuring a smooth and compliant VAT return process.
Time to refresh: what is VAT?
VAT stands for Value Added Tax and is applied to most products and services sold by VAT-registered businesses. You must register for VAT if your VAT taxable turnover is more than £85,000, but you can also choose to register if it’s less.
As a VAT-registered business, you have several responsibilities, which are:
- include VAT in the price of all goods and services at the correct rate
- keep records of how much VAT you pay for things you buy for your business
- account for VAT on any goods you import into the UK
- submit a VAT return to HMRC, detailing the amount of VAT you charged your customers and the amount of VAT you paid to other businesses
- pay any VAT you owe to HMRC
So why is it different in optometry?
As an optometry practice, you’re providing a multifaceted service. Although you are selling goods (frames and lenses), the service you provide by measuring and fitting spectacles is classified as dispensing.
Dispensing is performed by either an optometrist or a dispensing optician. This is accepted as a separate supply from the sale of frames and lenses which is exempt from VAT.
Of course, you may then be faced with determining the liability of the sale of spectacles. In this case, you must adopt the three stage approach outlined by HMRC:
- Determine whether your practice qualifies for exemption in its own right.
- Determine whether dispensing is carried out by, or directly supervised by, a registered optician.
- 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.
Any ‘Enhanced Eye Health Services’ that your practice offers will also be exempt from VAT. These include:
- Glaucoma referral refinement
- Cataract services pre and post operation
- Treatment of red eye and minor ocular emergencies
- Stable Glaucoma monitoring
- Diabetic Retinopathy screening
The supply of basic goods is liable for VAT at the standard rate, but apportionment may still be necessary if the charge includes an exempt dispensing element.
Some practices choose to disclose their charges for frames and lenses and the supply of the dispensing service separately, avoiding the need to carry out an apportionment method.
Tackling the VAT treatment of your optometry practice requires careful attention to detail of the dispensing services offered and the goods supplied to ensure compliance.
For more detailed guidance and support throughout the entire VAT return process, please don’t hesitate to get in touch with our team on 01942 816512 or email:
Kelly Street, Management Accountant: [email protected]
