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HMRC internal manual

VAT Valuation Manual

Specific applications: Opticians: Apportionment of charges for supplies of spectacles and dispensing: background

Since the ruling of the High Court in the case of Leightons/Eye Tech in 1995, it has been accepted by HMRC that the supply of spectacles by an optician is a mixture of VAT-exempt dispensing services and standard-rated frames and lenses. When that ruling was made, Customs agreed several methods by which opticians could calculate refunds of VAT overpaid. Although those methods were intended primarily to calculate historical refund claims, they continued to be used for calculating VAT on current returns.

Customs reviewed the situation in 1997 and concluded that it was no longer appropriate for opticians to have centrally agreed methods to establish their liability to VAT. The application of a limited set of methods to a varied group of traders had led to inaccuracies in some VAT declarations. All of the agreed methods were therefore withdrawn with effect from 1 January 1998.

From the beginning of the first VAT accounting period starting on or after 1 January 1998 an optician either had to use an apportionment method that had been individually agreed with HMRC or make separate charges for the spectacles and dispensing that were to be disclosed to each patient at the time of sale. It was the optician’s responsibility to suggest an appropriate apportionment method, but there was no right to demand any particular method’s use. Nor could Customs force an optician to use a particular method.

In many cases, an apportionment method based upon the costs of the supplies was felt to be the most practicable method to use. An example of a “full cost apportionment method” was included in Information Sheet 3/97 which could provide the basis for agreeing a method in individual cases. The suggested “full cost apportionment method” constituted a framework which, when adapted where necessary to take account of an optician’s individual circumstances, could provide the basis for an agreed method in an individual case. However, if an optician proposed the published “full cost apportionment method”, it would not automatically be accepted by Customs as securing a “proper attribution” of value as between the standard-rated spectacles and exempt dispensing.

Supplies of contact lenses or other goods and services were never subject to the “generally-agreed” methods that were applied to spectacle sales.