HMRC have published Brief 14 (2020), which covers changes to the methods used by opticians and sellers of hearing aids to account for VAT on their supplies. The changes take effect from 1 October 2020.
Broadly, opticians that dispense spectacles or contact lenses to their customers are treated as making two supplies for VAT purposes – the spectacles or lenses themselves, which are taxable at the standard rate, and a supply of dispensing services, which is exempt from VAT. Similarly, dispensers of hearing aids make a taxable supply of hearing aids and an exempt supply of dispensing services.
To account for VAT on the taxable element of their sales, opticians and hearing aid dispensers can either:
- use separately disclosed charges for each supply, notifying each separate charge to the customer at the time of sale; or
- charge a single price to the customer and make a fair and reasonable apportionment of the income between the taxable and exempt elements of the supply, using a method of their choice, which must be approved by HMRC.
HMRC have announced that from 1 October 2020, the processes will be simplified.
There is currently no uniform standard of evidence required from businesses to show that they are making separately disclosed charges. Businesses will be required only to hold a till slip or similar evidence to demonstrate that they are making two separate charges to the customer at the time of supply, and that this information is being conveyed to the customer.
Those using a method of apportionment will no longer have to seek prior approval from HMRC before operating a method. This will bring opticians and dispensers of hearing aids into line with other businesses that apportion VAT on their sales.