VAT Treatment of Cosmetic Services Supplied by Healthcare Professionals
Services supplied by doctors, nurses and other registered health professionals are exempt from VAT when the primary purpose of the service is the protection, maintenance or restoration of the health of the “patient”. This has led to issues with the VAT classification of certain “cosmetic” services provided by healthcare professionals.
This issue has been considered by the Courts in the case of Illuminate Skin Clinics Limited. The services performed by the clinic included treatments for collagen loss, excess fat reduction, botox and dermal fillers.
Challenging the initial decision
The First Tier Tribunal (Tax) originally decided the case in favour of HMRC, primarily on the basis that the “patient” had not formally been diagnosed with a medical condition. This meant that treatments were not provided for medical purposes, but instead were provided for cosmetic purposes (with the result that the fees charged were subject to VAT). This decision was challenged by the taxpayer and an appeal was lodged to the Upper Tier Tribunal (Tax).
The Court’s ruling
The Upper Tier has now ruled that the First Tier analysis of the therapeutic purpose of the treatments was too narrow, and in particular that the Tribunals’ expectations as to how a diagnosis might be evidenced were too high and over-generalised. It therefore allowed the taxpayer to appeal and remitted the appeal back to the First Tier Tribunal for a second hearing.
Although this is not yet an absolute win for the taxpayer, the Upper Tier decision contains clear guidance on the approach that should be taken in this type of case. In summary, the Tribunal is suggesting the following:
- For an exemption to apply, the supply must be made by a registered health professional, and it must have a therapeutic purpose.
- The assessment from a suitably qualified medical professional is significant in identifying that purpose; however, the professional is not required to record an elaborate diagnosis.
- Where a supply has both a therapeutic purpose and a cosmetic purpose, it is necessary to identify the primary purpose. This will involve a multi-factorial analysis.
This judgment certainly provides hope for businesses carrying out procedures of this nature that are undertaken (or supervised) by a health professional. If you or your client are involved in supplying this type of service, consideration should be given to the systems in place and whether these support VAT-exempt treatment.
How The VAT People can help businesses in the healthcare and cosmetic industries
The VAT People have extensive experience advising businesses in the healthcare and cosmetic industries, including clinics, suppliers and retailers. Our specialists work closely with you to clarify how VAT applies to your products and services, identifying which treatments may qualify for exemption and which are standard-rated. This helps you avoid unexpected liabilities and remain compliant with HMRC requirements.
We also review and optimise your VAT recovery, assessing the health of your current VAT position and internal processes. Our aim is to help you identify potential savings, reduce exposure to error and strengthen your overall VAT management.
Whether you are introducing new treatments, expanding your product range or undergoing an HMRC inspection, The VAT People provide clear, practical advice tailored to the cosmetic sector.
For further advice and assistance, please contact our team on 0161 477 6600 or email enquiries@thevatpeople.com.