Thinking about buying equipment or improving your practice, then think carefully.

Business Briefing by Bob Hutchinson, BSc, FCOptom, FSMC, FRSM,

Principal Eros Business Consulting

Thinking about buying equipment or improving your practice, then think carefully.

Like buying houses or cars the project is full of emotion which normally means the nearer we get to selection the less our heads play a part in selection and the more does our hearts.

This is just as true for us in optical practice who are far more used to selling than buying large price items.

So, before you fall in love with your hoped-for future purchase just ensure that you have all the facts in front of you which will encourage you to drive a hard bargain and get better value for money.

Eros Business Consulting spends much of its time advising optical practices often called in to assess the charging of Direct Sales taxes and to assist in a greater reclamation of VAT on purchases.

We do this with the owners and proprietors or their accountants and auditors of whom unsurprisingly many do not understand the laws on partial exemption and de minimis, nor the process of using the only approved methodology of Full Cost Apportionment.

As opticians we are a very small sector to be understood by all and we are a niche market in accountancy terms which is why the new requirements this year under MTD (Make Tax Digital) are hard for us to adhere to with “off the shelf” accountancy packages which do not take into account de minimis percentage vat purchase reclaims. But that’s another story!

It is during our VAT investigations that we discover many practices are running on luck rather than accurate forecasting and budgeting. Yet here is the very start of measuring what the practice can afford and the cost benefit that will be achieved by a makeover or new equipment.

For simplicity let us look at equipment purchase.

A new piece of equipment might provide either a more technology sound result than the one you have already in clinic, or it could improve the speed of clinical process, provide a greater safety in diagnosis, or an easier retention of recordings for future comparisons over time.

It of course might require further assistants or more space or an increase in clinic rooms, thus having a negative income affect.

If improperly introduced to the patient whilst they may benefit from the clinical results, they will never understand the improved outcome in your care for them.

So, if you want to put improved footfall on the positive side of your scoping list to decide on a particular product make sure you build in time to explain to every patient the benefits of your newly purchased kit. And tell them what it is and does, why you bought it and a ballpark figure for its costs. Only then will it become a conversation amongst their friends.

OK, so you have chosen to look at a piece of equipment, now what?

As seen every year at Optical Exhibitions you will find there is a very large and broad range of equipment dealers.

But you needn’t wait to do your research at a fair, the internet will provide you with most of the information online to compare and contrast each machine in each category.

Often buyers as with cars have an affiliation with a brand but this can be restrictive and widening the search amongst all companies will assist in improved appraisal and greater savings. Your patients are not worried about the branding!

Several equipment companies now cater for the “best of” within a range, choosing from all over the world rather than being restricted to a one company solution.
If there are two similar options, then use these as possible bargaining tools when discussing with the sellers. This is a buyers’ market to compare value and costs and re look at your budget.

Decision made, price confirmed and ready to make the purchase.

Wow wait on………How close are you to breaking your de minimis limits each quarter? A mistake in payment type now could wipe out your reclamation of a large percentage of your purchase VAT.

Your purchase is almost certain to be treated as an exempt purchase and with its VAT content of up to £16000 and a maximum de minimis level of a max of £1875 a quarter that figure plus the percentage treated as exempt in your non-attributable purchase vat will cost the business dearly.

That goes for refurbs of the clinical areas as well.

The answer is to lease the purchase of the equipment over a set period of years thus reducing the exempt vat content by a 1/36th or 1/60th or 1/84th per month assisting you to stay below the de minimis.

Just as we suggest you check your budget and your quarterly vat calculations before you consider buying we also suggest you look at the last years completed vat calculations as well as any quarter that had a high exempt + % non-attributable sum, take this away from £1875 for a quarter or £7500 for a year and you will know what leeway you have to buy and add more leases.

It is also a good idea to research the lending market before you start the purchase process. In fact, get comfortable with your lender and make your own choice not that of the equipment seller. Otherwise it would be like using the lender of a mortgage that your house seller insists you choose!

Dealers select lenders to advise you to use for many different reasons, friendship, ease and speed of selling their equipment or possibly for pecuniary advantage. Select your own, agree the best rates and head to your dealer with a pre-emptive offer.

What to look for in leasing with a lenders package.

To the untrained eye one lease looks and sounds from the advertising blurb very much the same as another. Not True!

Until recently, when arranging finance for equipment and refits you had to choose between having 100% Tax Relief in the 1st year by a capital purchase or leasing and losing the relief to protect exceeding your VAT de Minimis. Now you can have the best of both worlds, through a recent compromise solution specifically for the Optical Market named Optilease

OPTILEASE is designed specifically for Opticians and optimises your tax relief, giving you 100% Tax Relief in the 1st year AND protecting your important VAT de Minimis position.

Optilease was originally brought to the market 6 years ago by Snowbird Finance at Optrafair and to those who understood Partial Exemption in those days was greeted with great zeal. More now understand its importance and Optilease as a system is being offered by a few other lenders.

However Optilease as a lending system can be manipulated by lenders to suit their requirements so while it contains the elements of capital relief and de minimis reduction some offering it wrap it within as a minimum term agreement rather than a fixed term agreement as originally and still provided by Snowbird Finance.

Under the Snowbird Optilease agreement at the end of the term (7 years + one month) you own the equipment for a small nominal fee.

Minimum term agreements mean that your monthly charge continues rather like continuing to pay monthly for your smart phone and sim even after the phone has been paid for!

What you should look for

Looking at the market currently the Snowbird Option provides:

For the last 6 years Snowbird Finance has been providing Opticians with an OPTILEASE Solution where Opticians can:

* Claim 100% Capital Allowance in the 1st Year if Optilease.

* Own the equipment at the end of the term

* Fixed rates for minimum 7 Years

* Optimises Tax Relief

* Spread the VAT over the term of the agreement – Protecting their VAT de Minimis position

Warning: Optilease products are provided by some other lenders but do not necessarily contain all of the above advantages.

Like the equipment vendors who provide a spread of reputable brands to cover all requirements, so does for example Snowbird Finance who will work out the best finance package for the customer through their network of lenders. One size in lending does not fit all.

As VAT advisors we have regularly been called in to assist purchasers in checking their de minimis levels by Snowbird who have a solid understanding of VAT treatment themselves and will with Eros Business
Consulting assistance provide guidance to the Optician and accountant about how to best handle this.

Remember you can use additional finance loans, leases or lease purchase for much more than equipment, such as refurbs, tax bills and other smaller purchases allowing you to iron out any hot spots in your capital expenditure during the year.
Eros Business Consulting has been providing optical practices large and small as well as other industry players in equipment and computing for over 20 years and this article has been updated to the current position today along with our experiences with companies over that period.

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Tel: +44-(0)1787 326468

You can find links and read more about Snowbird Finance on PHN’s Suppliers Guide Here