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HMRC internal manual

VAT Health

HM Revenue & Customs
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The services of the medical and paramedical professions: opticians: contact lens replacement/aftercare schemes - liability

Historically, our view on the liability of payments received in relation to lens replacement and aftercare schemes was that such payments were the consideration for benefits which may or may not be taken up, not for the consideration for medical care - and as such we saw the supply as taxable.

However, we now recognise that the payments are for the benefits to be received and not just for the right to receive those benefits. Thus, we now accept the schemes as prepayment for future supplies of both exempt professional services and standard rated goods, and therefore apportionable - unless the replacement scheme entitles the wearer to no more than the replacement of lenses or supplies of disposable lenses with no sight tests or check ups, in which case the whole supply is standard-rated. However, these represent a minority of replacement schemes.

However, as with supplies of spectacles and contact lenses, exemption cannot apply unless the dispensing or fitting elements are carried out or directly supervised by, a registered or enrolled optician. If you are satisfied that these conditions are met, you will then have to arrive at a fair and reasonable apportionment by valuing or costing the various elements supplied under the scheme. Some optical practices will separately identify the cost of the goods and service and disclose these charges to the patient. In this case there is no need for an apportionment The following paragraph lists some typical benefits available under these schemes and indicates whether they are standard-rated or exempt. Guidance on methods of apportionment can be found in V1-12 Valuation and in Notice 700, The VAT Guide.

Table 1 Supplies of contact lenses: costs attributable to standard-rated and exempt elements

| ### Standard-rated supplies | ### Exempt supplies | || | * Cost of lenses and accessories and other consumables * Delivery of lenses to sales premises * Insurance of lenses * Storage costs * Costs of manufacture (where a business makes the lenses itself) - includes materials, labour, storage, manufacturing equipment, delivery charges to place of manufacture, equipment maintenance costs and equipment overheads * Display equipment | * Sight test equipment * Prescription forms * Optician’s remuneration directly attributable to dispensing |

Table 2 Contact lens replacement schemes: VAT liability of benefits provided

| ### Standard rated benefits | ### Exempt benefits | || | * Polishing and deproteinising of lenses; * Lipo treatment to soft lenses * Replacement lenses or uprating of power, shape etc * Supply of lens case * Discount on lenses * Discounts on contact lens solutions and accessories * Discounts on spare contact lenses * Credit for existing lenses when upgrading to a higher type | * Periodic check ups * Examinations connected with the above * Sight test examinations * Lens assessment and trial of different types |