Independent VAT Consultant
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Opticians get clear VAT treatment at last

HMRC permission is no longer needed for output tax apportionment methods used by opticians and hearing aid dispensers, but care is still needed with input tax.

29th Oct 2020
Independent VAT Consultant
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Optician shop front


HMRC and opticians have contested many lengthy battles over VAT on dispensed spectacles over the years. The Revenue and Customs Brief 14/2020 issued on 23 September 2020 gives two important concessions to opticians, also extended to hearing aid dispensers. The changes took effect from 1 October 2020. 

Mixed supply

HMRC historically took the view that if you bought a pair of dispensed spectacles or contact lenses from a registered optician, that was a supply of standard rated goods. That view changed following the famous High Court decisions of Leightons Ltd and Eye-Tech Opticians in the late 1990s, which decided that part of the supply related to the professional medical services of registered opticians and dispensing staff. In other words, there was a mixed supply of exempt services and standard rated goods.

Agreed method

Opticians have often been reluctant to divide their prices into the two different elements at the time of the sale, so that customers know the breakdown. They often prefer to sell the spectacles for a single price – and that means output tax has to be apportioned using a different method. Until now, that method had to be approved in advance with HMRC.

Cost apportionment

The usual method is for opticians to apportion their output tax on a cost basis. These calculations take into account the professional time of optician plus other costs, and produce an overall percentage of sales that are standard rated and exempt. 

However, until Brief 14/2020 was issued, apportionment methods had to be approved in writing by HMRC before they could be adopted. That is no longer the case, but the apportionment methods must follow the principles of output tax apportionment explained in VAT Notice 700, section 8.

Partial exemption

A lower percentage of standard rated sales is not a complete ‘win win’ for opticians. A higher figure for exempt sales means there will be less input tax to claim on expenses used for both goods and services, ie residual input tax.

For example, sight testing fees are exempt from VAT, so the purchase of sight testing equipment is input tax blocked as directly relating to exempt income. However, VAT on other costs, such as the purchase of spectacles, can be wholly claimed because they directly relate to taxable goods. Overheads and mixed costs such as shop rent will be partly claimed, usually according to the standard method based on the split between exempt and taxable sales.

Potential trap

The output tax concession does not extend to partial exemption special methods proposed by opticians to apportion their input tax. A special method is any calculation that is not the standard method and they always require HMRC approval. That will continue to be the case, as for any other business.

Floor space methods

Opticians often proposed special methods based on floor area splits. These were usually rejected by HMRC, rightly in my view.

The reason is because a lot of space in a typical store is used for both taxable and exempt purposes, rather than one or the other. This meant the proposed method would often produce a biased input tax result in favour of the taxpayer based on a limited area of space. This is dangerous because taxpayers have to certify that the proposed method gives a ‘fair and reasonable’ recovery of input tax.


Revenue and Customs Brief 14/2020 also confirms that businesses can give a till slip to customers to show the split of goods and services, if they go down the separate pricing route. The challenge is to ensure that the customer knows the split at the time of the sale.

Finally, make sure that your clients don’t carried away with the freedom to adopt their own output tax methods. If they submit regular VAT repayment returns, this usually indicates there is a VAT problem that needs to be solved as soon as possible.


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