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Opticians and VAT: Is Revenue e-brief 37/2007 being adhered to?

Friday, October 1, 2010

by Nick Ryan

Following a long and drawn out case by a number of leading opticians supported by the Opticians association the VAT treatment of optician’s services changed once again as confirmed by Revenue e-brief 37/2007. Following the High Court decision we experienced the confusion of Revenue’s initial interpretation that the services provided were considered to be a composite supply of spectacles. Odd to imagine people demanding eye tests and striving for poor vision in order to purchase designer frames! Revenue, under pressure, concurred with the prevailing view and E-brief 37/2007 was introduced. Through this process opticians were forced to undertake two separate calculations to bring their VAT affairs in line with the decision reached.

Revenue conceded that dispensing services provided by opticians were VAT exempt. They also confirmed that the dispensing services provided were part of a multiple supply of dispensing services, lenses and frames. Revenue’s e-brief confirmed this and outlined the VAT accounting requirements for opticians in order to account for VAT on their services. For the multiple supply of dispensing services, VAT is accounted by determining the VAT liability of each element of the supply and its ratio to the overall consideration. Revenue further state that for opticians any method used to determine the ratios of the supplies made has to be agreed by Revenue. Also that Revenue are prepared to accept an apportionment of up to 50% in respect of the VAT exempt dispensing services, any percentage higher than this requires further approval by Revenue.

Sounds straightforward enough or is it? Having come across an optician recently the position was not what one expected. Was there an awareness of the change, yes. Did the optician have an understanding of what was required under the Revenue’s e-brief, sadly not at all. The one point that they had comprehended was that they could recover up to 50% of any VAT incurred on costs without drawing the attention of Revenue. This was there simple logical approach that kept things manageable for them.

Sadly such a view does not hold water and leads the business open to Revenue interrogation. This case led me to consider what other opticians have done. From experience in assisting a number of opticians back in 2007/2008 on preparing claims for the adjustment periods and determining methods for future accounting under the new rules I was struck by a number of factors. Firstly some opticians appeared to readily jump at the 50% recovery rate as an attractive option yet when their records where assessed it was found that their level of exempt dispensing services were lower than 50%. Secondly was the varied approach by Revenue in approving claims and in understanding and agreeing methods. Dual use recovery has always created problems especially when the method moves away from the standard turnover method. Once you get into variances on time usage, floor space among others then Revenue become concerned.

So what is required under Revenue e-brief 37/2007. The e-brief outlines the VAT accounting requirements and methods to be implemented by opticians in order to account for VAT on the services made. It stresses that any method utilised by an optician must be approved by Revenue. This method is used to determine the apportionment of the total consideration as per the various supplies provided and then, on the basis that this apportionment was reflective of the activities undertaken by the optician, account for VAT at the appropriate rates on these supplies. Revenue also confirmed that they would accept the exempt element for the dispensing service to be no higher than 50% of the overall consideration.

In conjunction with this, as the optician is making both taxable and exempt supplies then they are only entitled to recover VAT incurred directly with the taxable supplies made. Any VAT incurred directly in connection with the VAT exempt services is not allowable and VAT incurred on costs which are neither incurred directly for either taxable or VAT exempt supplies has to be apportioned, by use of an appropriate method, in order to determine what percentage is recoverable.

If you have opticians as clients then we would strongly recommend that you confirm that firstly they comply with the guidelines as set out in Revenue e-brief 37/2007. Also, any method in place should be reviewed to ensure it meets with and is reflective of the business as it stands today.