18 July 2023
The First-tier Tribunal has found, in an appeal brought by Illuminate Skin Clinics, that VAT applies to many of the cosmetic skin treatments it offers to its clients.
The clinic, operated by a GMC registered doctor, claimed its services (botox, dermal fillers, coolsculpting, prescription skincare, chemical peels, fillers, microdermabrasion, microsclerotherapy, Aqualyx injections and platelet rich plasma treatment) were eligible for the medical services VAT exemption.
Despite the doctor's services being provided to a high clinical standard, the tribunal found in favour of HMRC, deciding that the treatments provided by the clinic were not exempt from VAT as they did not constitute ‘medical care’. The other condition for the exemption was met in that they were carried out by or supervised by a registered medical practitioner, but this was not sufficient on its own.
As relied upon by many other clinics and hospitals, the psychological benefit of the treatments was put forward as the therapeutic aim, but this was broadly dismissed by the tribunal. The tribunal emphasised the importance of treatment being precipitated by a related medical diagnosis and being able to evidence this to support a claim for VAT exemption. In this case, there was no ‘diagnosis’ made because the patients essentially referred themselves to the clinic and chose their treatments.
Subject to an appeal, this decision strongly suggests the tests to obtain VAT exemption could be much narrower than the industry typically applies, so it could have significant implications for other providers of cosmetic treatments. HMRC is known to be actively targeting clinics for VAT inspections and this decision adds further weight to HMRC’s position that these treatments are generally of a cosmetic nature - even if the patient’s condition causes them psychological distress and they may have been diagnosed with depression elsewhere.
To qualify for VAT exemption as "medical care", the key is to establish that the services have a therapeutic aim of diagnosing, treating, or as far as possible curing diseases or health disorders. It may be possible to support a claim for VAT exemption where there is clear evidence of a referral from a doctor or other medical practitioner which could include documented diagnosis, treatment plan or healthcare plan of which the services form a part.
The tribunal also emphasises the importance of maintaining comprehensive and detailed records, in support of any claim for VAT exemption. In the absence of such evidence, it will be difficult to establish the treatments were not sought primarily for aesthetic reasons and were the patient’s choice rather than under the direction of/following consultation with a medical professional.
We expect HMRC will continue to target providers of such services for VAT inspection and seek to raise costly assessments. Any clinic or hospital claiming VAT exemption for these services or similar, should review its current position, to determine what further action may be required to ensure compliance with VAT legislation in this area.