Four income streams, four behaviours
GOS income moves with a fee determination you do not control and which may arrive eight months late. Private testing moves with demand. Dispensing is exempt. Goods are standard-rated. Merged into one turnover line, none of them can be explained, and the VAT recovery that depends on the split between the last two becomes guesswork.
Structure
Corporation tax is 19% to £50,000 and 25% from £250,000, with marginal relief of 3/200ths between — an effective 26.5% on that band. But structure is not purely a tax question here: VATHLT2190 asks a different question of a body corporate than of a qualified sole proprietor, so incorporating changes which limb of the test you are relying on. That should be established before the decision, not after.
Common questions
What should optical practice accounts separate?
GOS income, private testing, dispensing services and goods, at minimum — because they are taxed differently and behave differently. GOS income moves with a fee determination you do not control and which may arrive late. Private testing moves with demand. Dispensing is exempt and goods are standard-rated, so the split between them drives your VAT recovery. A single turnover line hides every one of those, and with it any ability to explain a bad month. It also makes the partial exemption calculation guesswork, because the recovery depends on the ratio between exempt dispensing and standard-rated goods.
How does the VAT position affect the accounts?
Substantially, because a partially exempt business cannot recover all of its input tax. The proportion of exempt dispensing in your sales drives the recovery calculation on shared overheads — rent, utilities, professional fees, equipment. Get the apportionment right and the recovery follows; get it wrong and you are either over-recovering, which is a liability, or under-recovering, which is money you have simply given away. Neither error announces itself, which is why the method needs to be established and documented rather than carried forward from whatever was set up when the practice opened.
Sole trader, partnership or company?
It depends on profit level, on how much you need to draw, and on whether you intend to sell. Corporation tax is 19% on profits to £50,000 and 25% from £250,000 with marginal relief of 3/200ths between, an effective 26.5% on that band. Against that sit dividend rates and the cost of running a company. There is also a VAT dimension: the VATHLT2190 test asks a different question of a body corporate than of a qualified sole proprietor, so the structure and the VAT position are not independent decisions.
When do we find out whether the year was any good?
Too late, in most practices — usually once the accounts are done, by which point nothing can be changed about it. We would rather produce management figures during the year with GOS, private, dispensing and goods separated, so that a fall in one is visible while it is still something you can respond to rather than something you are explaining afterwards. Quarterly is usually enough in this sector, provided the four income streams are separated — monthly adds cost without adding much you can act on.