VAT Introduction

Full Cost Apportionment

SIMPLIFIED VARIANT AGREED

Since the release of the High Court decision maintaining there were two separate supplies involved in the dispensing of spectacles, opticians and local VAT officers have been grappling with the problem of how to apportion the income received between the taxable supply of goods and the exempt supply of dispensing.

INTRODUCTION

Initially, agreement was reached between Customs & Excise and the optical professional bodies that there were three methods of calculating the apportionment:

• Cost Plus;
• Fixed Mark Up; and
• Full Cost Apportionment.

The first two methods were only ever intended as interim methods to allow opticians to retrospectively recover VAT overpaid and Customs & Excise effectively withdrew their use with effect from 1 January 1998 by the issue of Information Sheet 3/97. This left the Full Cost Apportionment method which many opticians believed only ever applied to the larger optical practices, but was in fact negotiated on the basis that it could be used by all opticians regardless of their size and the legal status of their business. (limited company, partnership or sole proprietor)

PROFESSIONAL FEE ACCOUNTING

As a result of the withdrawal of the Cost Plus and Fixed Mark Up methods, some opticians have been advised to separately charge their customers for the supplies of goods and services. C & E accept this as long as the customer is aware that he is paying for two separate supplies and is informed of the price he is paying for the goods and for the dispensing services.

Customs & Excise do not specify the manner in which this information is provided to the patient but the optician must be able to demonstrate to Customs that the information is being conveyed even if it is not requested by the patient. One method of conveying the information could be on any invoice/till receipt provided to the customer. Alternatively, a clearly displayed price list which shows the value of the service and the goods being supplied would be sufficient.

It must be appreciated that the cost of goods would differ for many patients and this will have an impact on the value of the opticians services even if spectacles being purchased by two patients are in the same price range. Price lists would carry many different service charges dependent upon the frames and lenses being dispensed.

Many opticians may determine that it is not practical to operate a system of separately charging for the goods and services and will continue to charge one price for the dispensing of spectacles. They will therefore require a method of apportionment to properly attribute the selling price between the goods and services.

FULL COST APPORTIONMENT (simplified)

This document aims to explain Full Cost Apportionment and identify the steps needed to produce an apportionment with the use of a fully worked example. The method explained in this document is a variant of the Full Cost Apportionment method originally agreed in Information Sheet 10/98.

Whichever method an optician chooses, it must be agreed in writing with the local VAT office and implemented as soon as possible.