AEL analysis and Press Release May 2006

Press Release by AEL 10/05/2006 Andy Kontakkis, VAT manager at Alexander Edward Lee, specialist VAT & Tax advisers to Independent Opticians, commented as follows:- 

Yesterday the High Court decided to dismiss the Appeal of Specsavers Group. The Appeal brought by Specsavers sought to reverse Customs enforcement of the Standard Method which Customs required them to use to recover VAT on overheads. Specsavers instead wanted to use their own Special Method. The Court confirmed that the previous Tribunal decision was correct in law and that it is no longer acceptable for Opticians to base Special Methods upon floor space. To understand the impact of this decision, it is important to firstly compare the two methods. The Standard Method favoured by Customs seeks to calculate how much input VAT on overheads can be reclaimed.This is calculated by simply taking the percentage of a practices sales that attract VAT (i.e accessories and the sale of optical hardware) against total turnover. Customs prefer this method as it is simple for them to police, easy for practitioners to operate and produces a result representative of the practices activities. The Specal Method favoured by Specsavers seeks to calculate the recovery of input VAT on overheads in a different way. The Specsavers method does not look at the sales split but instead calculates the floor space attributable to the different activities of the practice. They argue that the majority of the floor space is attributable to sales that attract vat and therefore their method recovers input VAT that is invariably higher than under the Standard Method. Mr Kontakkis stated that this decision may well affect other practices. He believes that Customs now have the necessary precedent to enable them to not only review the VAT position of ractices using a method based upon floor space, but to enforce the Standard method where they see fit. Mr Kontakkis urged independent practitioners to seek specialist VAT advice on this area as the results could have a significant bearing on their profits.