ASK AEL - seperately disclosed charges

HC asks :- Is it true that I can reduce the VAT paid over on my spectacle turnover by simply showing a high dispensing fee on the till receipt ?

AEL replies : Opticians will be aware that the supply of corrective spectacles includes two separate supplies; that of professional care which is exempt of VAT and the product itself which is fully taxable.
Independent Opticians have a choice of how to account for VAT. They can apply a simple , pre-agreed, percentage to the total sale to determine the VAT element and this is called the Fixed Cost Apportionment method.
Alternatively, a method known as Separately Disclosed Charges can be used and it is this method that the reader above refers. Until recently, it was believed that Customs would accept that separate consideration had been established if each of the mixed supplies were separately stated on the till receipt. However, following the recent Stott tribunal case, Customs confirmed they would NOT accept this. Instead, the 2 separate elements of the supply had to be made known to patients at the beginning of the sale process or at the very latest, before the patient ordered the spectacles.
It is therefore not acceptable to simply issue a till receipt with two separate supplies on it as evidence for VAT treatment.
There is now a real likelihood of Customs targeting Opticians who have been using this method incorrectly and Customs could impose retrospective assessments, penalties and interest following enforcement of alternative methods.
We would strongly advise all Opticians affected by this to seek the urgent advice of VAT specialists.