Opticians and VAT – position with effect from 1 November 2006

As a consequence of the commencement of section 97 of the Finance Act 2006, (which amended section 11(3) of the VAT Act), Revenue had contended that the supply of corrective spectacles and contact lenses and the associated dispensing services was a ‘composite supply’ taxable at the standard rate with effect from 1 November 2006.

However, Revenue has revised its views on the interpretation of the new section 11(3), and now accepts that where a dispensing service is supplied with spectacles or contact lenses, that supply by an optician constitutes two supplies forming a'multiple supply' consisting of:

1. A taxable supply of goods,
2. An exempt supply of professional services of an optical nature referred to as ‘dispensing services’.

Accordingly, the paragraph entitled ‘Position with effect from the commencement of section 97 Finance Act 2006’ of e-Brief No. 36/2006 is withdrawn.

The revised interpretation of the law may result in an entitlement to repayments of VAT to opticians where they had accounted for VAT at the standard rate on the dispensing service element of the price from 1 November 2006 on the basis of Revenue's earlier interpretation.

1. Claims for repayment for periods November December 2006 and subsequent periods

This article sets out the requirements that an optician needs to comply with in order to obtain repayments of VAT. Revenue Districts have been advised that claims to repayment by opticians for the periods November/December 2006 to July/August 2007 may be settled on the basis of the instruction set out in e-Brief No. 36 of 2006.

• Opticians may use either of the methodologies set out in e-Brief No. 36/2006 to calculate repayments
• All claims must be supported by comprehensive computations of the make up of the claim.
• Opticians must confirm that the VAT was correctly paid on the basis of Revenue's policy on the taxation of such supplies as set out in e-Brief 36/2006 with effect from 1 November 2006.

2. Interest

Interest is payable by Revenue in relation to repayment claims in accordance with section 21A of the Value-Added Tax Act 1972 (as amended). Opticians should submit their computation of interest payable with their claims.

3. Position going forward

With effect from 1 September 2007, opticians should apportion the total consideration received for the supply of corrective spectacles and contact lenses between the exempt supply of ‘professional services of an optical nature’ and the taxable supply of ‘goods’ in accordance with the guidance for apportionment of ‘multiple supplies’ set out in paragraph 7 of Information Leaflet – Goods and Services Sold Together – dated July 2007.

Each optician should agree an apportionment methodology with their local Revenue District. It should be noted that Revenue is prepared to accept an apportionment of the total consideration that shows up to 50% of the price charged as being appropriate to the exempt service. Any claims for a higher percentage will be examined in detail to ensure that the apportionment between the ‘individual supplies’ is carried out in a way that correctly reflects the ratio which the value of each ‘individual supply’ bears to the total consideration for the ‘multiple supply’.