HMRC win case governing VAT exemption of cosmetic treatments
Sue Rathmell · July 10th 2023 · read
The First Tier Tax Tribunal has found in favour of HMRC in the VAT case of Illuminate Skin Clinics Ltd, a case looking at whether cosmetic treatments can be exempt from VAT. The provision of healthcare services by a doctor, nurse or other person enrolled on a statutory register can be exempt only where the primary purpose of the services is the protection, maintenance or restoration of the health of the person concerned.
The Tribunal found that although Illuminate Skin Clinics Ltd was run by a qualified doctor, there was no diagnosis of a health disorder or disease, no referral from a doctor or other medical practitioner, no notes showing evidence of diagnosis and no healthcare or treatment plan to support a claim to exemption. The Tribunal decided that these would be ‘potentially capable of supporting a claim to the exemption’. The Tribunal also considered whether the fact that cosmetic procedures were carried out because the patient was suffering mental distress was sufficient to exempt the services. The Tribunal found ‘Helping someone to achieve goals in relation to their appearance - which is what this clinic does - is not treating someone's mental health status, but is going to their self-esteem and self-confidence. It is a misuse of language to say that this is healthcare in the sense that it would fall within’ the VAT exemption.
The Tribunal concluded "If what is being done is not "diagnosing, treating and, in so far as possible, curing diseases or health disorders", then neither the provision of a pre-treatment consultation, nor being asked about previous medical history, or body image, or psychological/emotional challenge, turn what is being done into medical care, or change its tax status to exempt.’
How will this case affect clinics operating in cosmetic treatments?
If clinics and other businesses operating in this area have been exempting their services, then they should review this decision immediately. A First Tier Tribunal decision is not wholly determinative but it is likely that HMRC will use the decision to support a review of other clinics. If clinics have been exempting their services incorrectly then they could have to backdate a registration for VAT and pay VAT to HMRC on services carried out from the date of registration.
We can help clinics by reviewing whether the exemption can apply to their services. The decision gave some useful pointers of what the Tribunal considered might support the exemption so we may be able to help clinics support using the exemption going forward. Please contact us for advice using the button below.