Scott Harwood

Written by:

Scott Harwood

Partner, Head of Public Sector VAT

VAT case threatens price hike for some cosmetic procedures

A recent First Tier Tribunal decision [TC07310 Skin Rich Ltd] has ruled that the procedures undertaken by health clinic Skin Rich Limited (SRL) were cosmetic in nature and were not exempt as either medical care or, given they were not regarded as a regulated clinic, as qualifying services provided by a hospital or similar institution.

SRL provides a variety of medical and cosmetic services for patients, including botox injections (administered by registered health professionals) and nail fungal treatments (which were not administered by such professionals). The final conclusion of the court, that the appellant’s services were subject to VAT at the standard rate, was not wholly unexpected. However, the case provides some useful analysis and summary of the interpretation of the separate medical care and hospital exemptions.

In the Court’s opinion, the hospital exemption might cover a wider scope of services namely, ‘care’ as well as ‘medical care’. The judgment comments this may have been overlooked in the earlier Ultralase Medical Aesthetics case where the provider was a regulated clinic.

The court also postulated ‘care’ could encompass the treatment of a (congenital) condition that has, as a principal purpose, the welfare of the individual at heart (for example, to treat an underlying psychological condition). A purely cosmetic procedure, with no underlying medical condition being treated, albeit providing a residual psychological benefit, is unlikely to meet this test.

Many hospitals and clinics regularly rely on the 'psychological benefit' argument which commonly falls short of HMRC's policy, thus frequently leads to large VAT assessments. This case, whilst unsuccessful for the appellant, could feasibly provide a future defence avenue. However, it means that providers must retain documentation evidencing that (on a patient-by-patient basis) the treatment is required principally to undo the psychological harm caused by the underlying condition.

Ultimately, medical providers should be reminded of the need to fully evidence and understand the underlying conditions of their patients that are being treated. The onus is on the provider to retain and produce this evidence to HMRC. Without sufficient evidence, one should conclude their clinical procedures are purely cosmetic and must therefore be subject to VAT.

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