Why this is the most valuable calculation on the site
Since the High Court decisions in Leightons and Eye-Tech, an optician's sale of spectacles is two supplies rather than one: standard-rated goods and exempt dispensing services. VATVAL12320 dates the change to 1995. A practice that fails all four questions of the VATHLT2190 test charges 20% on the entire price with no exempt element at all.
You cannot simply pick a percentage
The dispensing proportion has to be apportioned on a basis HMRC accepts and evidenced from your own cost structure. What this tool does is show the shape of the answer — the difference between apportioning and not — so you can see whether doing it properly is worth the work. For any practice of any size, it is.
Two routes, and HMRC has no preference between them
VATVAL12320 gives opticians a choice, and says in terms that HMRC has no preference for one over the other. It is a business decision rather than a technical one.
Separately disclosed charges. You state the charge for the spectacles and the charge for the dispensing, and make both known to every patient at the time of supply. There is then no apportionment at all — section 19(2) applies instead of section 19(4). HMRC will not accept it where the split is recorded in your accounts but only a single charge is shown to the patient, or where the separate charges are disclosed only to patients who ask. Revenue and Customs Brief 14 of 2020 confirms a till slip or invoice showing both charges at the time of sale is enough. HMRC does not require you to reveal your mark-up.
Apportionment. You make a single charge and attribute part of it to each supply, as section 19(4) requires. Sight tests are excluded from the calculation entirely, because they carry their own separate charge. Nothing in the Act requires a particular method.
What HMRC will actually accept
Since 1 October 2020 you no longer need prior approval for an apportionment method — Brief 14 removed it, bringing opticians into line with every other business that apportions. What replaced approval is a standard: the method must be attributable to verifiable data and based on an accurate representation of your own business practices, and it is your responsibility to ensure that it is.
VATVAL12400 gives HMRC's worked example, the full cost apportionment method, expressly as an illustration rather than a standard method for all opticians. It builds a cost of goods per pair, a cost of service per pair from optometrist, dispensing optician and supervised staff time, and derives the taxable percentage from the two. Direct costs include salary, employer's National Insurance, employer pension contributions, professional subscriptions and indemnity borne by the practice, optical training and recruitment. Depreciation on fixed equipment must not be included, and neither may the share of optometrist cost relating to the exempt eye test or to administration. HMRC explicitly allows the simple version: if an optometrist spends half their time testing and half dispensing, use half their cost.
A method is not set and forgotten. VATVAL12400 requires recalculation when the number of branches changes, when the number of optometrists, dispensing opticians or supervised staff changes, when the practice restructures — an optometrist who used to do both moving to testing only — or when you move between buying in lenses and glazing in house. If you are unsure whether a change is major, recalculate annually and make an adjustment.
Partial exemption is the other half of the answer
Exempt income means partial exemption, and VATHLT2190 says so directly: an optician's partial exemption calculation has to be reviewed to establish whether input tax recovery is restricted. The standard method is taxable supplies over total supplies, rounded up to the next whole number.
Then the de minimis test, which is worth understanding precisely because people treat it as an allowance and it is not. Under regulation 106 you may recover exempt input tax if it is no more than £625 a month on average — £7,500 a year — and no more than half of all your input tax; or on either of two alternative limbs based on total input tax and the value of exempt supplies. HMRC is explicit that it is an all or nothing test, not an allowance: cross the line and you lose the whole of it, not the excess. It is applied only after the partial exemption calculation is complete, and a business using a combined partial exemption and business/non-business method cannot use it at all.