Why the supply of cosmetic procedures could be exempt from VAT

A recent case in the Upper Tribunal considered whether the supply of cosmetic treatments constituted a supply of medical care, therefore falling within the exemption from VAT.  It has become a lead case for the cosmetic services sector.    

The taxpayer ran a private clinic offering a range of aesthetic, skincare and wellness treatments, including treatments for collagen loss, excess fat, Botox and dermal fillers. 

The taxpayer had treated some of its supplies as exempt from VAT on the basis that their treatments addressed genuine health concerns.  HMRC disagreed and argued that all supplies should have been standard rated since cosmetic treatments did not fall within the definition of “medical care”, for VAT purposes.

Medical services are exempt from VAT when a “health professional” supplies: 

• Services that are within the profession in which the health professional is registered to practice 
• Services whose primary purpose is the protection, maintenance or restoration of the health of the person concerned 

HMRC accepted that a procedure can have both a therapeutic and  cosmetic purposes.  Where the therapeutic purpose is the principal purpose, the supply will be exempt, but if the cosmetic purpose is the principal purpose, then the supply will be standard rated.  

In this case, HMRC argued that the therapeutic purpose was not the primary purpose, as the service provided remains a cosmetic procedure. 

The taxpayer argued that the First-tier Tribunal (FTT) definition of medical care was too narrow. It argued that if a doctor made a clinical assessment that a client had a health disorder and made a further clinical assessment to treat that disorder, then the treatment could not be described as purely cosmetic.  

Such a supply would have a therapeutic aim and would therefore be exempt in its entirety.  It also stated that in some cases, it may be difficult in practice to differentiate a therapeutic purpose from a cosmetic purpose. 

The UT agreed that the FTT adopted too narrow an interpretation and assessment of the medical care definition. It failed to recognise that the concept also includes protecting, maintaining or restoring human health and includes the protection and maintenance of health, which does not require a diagnosis.

The FTT’s expectations of how a diagnosis should be evidenced were too high and over-generalised. The taxpayer would not routinely write to a client’s GP following treatment unless the client had a specific health condition being managed by their GP, and if the client gave permission. 

This case has been passed back down to the FTT to reconsider its decision in light of the UT’s findings.   

Where the therapeutic purpose is accompanied by a cosmetic purpose, or indeed any other purpose, it is necessary to decide whether the therapeutic purpose is the primary purpose. 

Relevant businesses in the cosmetic services sector are encouraged to review their treatment lists to ensure the correct VAT rates are being applied and assess the opportunity to recover overpaid VAT. 

Strong supporting evidence is recommended to support the treatment of services for VAT within the exemption. 

While we do not yet know the outcome of the FTT’s reconsidered decision, this case provides an opportunity for clinics and similar businesses to make claims for historically overcharged VAT on treatments qualifying for a therapeutic purpose. 

Affected suppliers should also consider how the reclassified income, from standard rated to exempt, affects their partial exemption recovery position both historically and going forward.  

Approval code: NTEH7112555