Cosmetic procedure or medical care?

Understanding VAT classification for correct tax treatment and compliance.

Listen to this article

Where medical care is provided for the protection, maintenance, and restoration of the health of an individual it is exempt from VAT as there is a public interest in ensuring the general population have access to medical care. Conversely, cosmetic procedures are subject to VAT at the standard rate (20%).

For instance, a dentist removing an infected tooth is providing a medical service (exempt from VAT), whereas if the same dentist is straightening or whitening teeth, it may be considered cosmetic, which would not be exempt and would incur a VAT charge.

What is the issue?

There has been an increase in the number of cases whereby HMRC have viewed that a ‘medical’ procedure should have, in fact, been classified as cosmetic. It can be difficult to determine exactly how such services should be classified. Often there are legislative challenges in terms of precise definitions, some of them involving HMRC’s interpretation and application of that legislation, and others that are based on subjective and non-specific views, feelings, and general observations.

The lines and distinctions that exist between exempt medical care and taxable cosmetic surgery can become somewhat blurred. In one person’s eyes a procedure may fall clearly and unequivocally into one definition, but to another person the opposite view may be the case. These distinctions can become even less clear as new procedures and services become popular. Providers in the sector who have concerns should seek professional assurance on the correct tax treatment.

Greg Mayne, Partner

Illuminate Skin Clinics Ltd charged £1.6 million in VAT

In a recent VAT tribunal it was determined that the services provided by Illuminate Skin Clinics Ltd, a private clinic offering surgical procedures, did not qualify as “medical care” under the VAT Act 1994 and were, therefore, not exempt from VAT. As a result, the appeal by the clinic was rejected, and they were charged £1.6 million in VAT for failing to register and account for VAT dating back to 2010.

The clinic operated by offering various procedures, including Botox, dermal fillers, and thread lifting, all conducted by, or under the supervision of, the clinic’s sole director and shareholder, a qualified doctor registered with the General Medical Council.

The clinic argued that these treatments were medical procedures because they were administered by a registered medical professional, as outlined in the VAT Act.

However, the First-Tier Tribunal (FTT) found that there was minimal evidence of diagnosis- a crucial aspect in determining whether a service qualifies as medical care. The initial consultation ‘diagnosis’ processes at the clinic were described as simply cursory documents and failed to recognise any health disorder. The tribunal noted that diagnosis is the foundation of medical care, and, without it, the treatments provided could not be considered responsive to a disease or health disorder, thus failing to meet the criteria for VAT exemption.

How can Price Bailey help providers of cosmetic procedures?

Errors in determining the VAT liability of supplies can have severe financial implications with HMRC able to enforce retrospective VAT registration for up to 20 years, demanding VAT payments from the point when the VAT threshold was first exceeded, along with penalties and interest.

If you are providing cosmetic treatments that you believe qualify as VAT-exempt medical or healthcare services, it is crucial that you seek advice to ensure your classification of services for VAT purposes is correct. Price Bailey can also assist with VAT disputes or liaising with HMRC.

Click play to listen to this article

Price Bailey · Cosmetic procedure or medical care?

We always recommend that you seek advice from a suitably qualified adviser before taking any action. The information in this article only serves as a guide and no responsibility for loss occasioned by any person acting or refraining from action as a result of this material can be accepted by the authors or the firm.