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In both these cases HMRC continued their success in arguing that certain procedures, which had historically been treated as zero-rated or exempt, were subject to VAT. In one case this resulted in the company facing a retrospective registration requirement going back over 15 years and a historic VAT liability of approximately £2.5 million.
HMRC accept that where medical care is provided for the protection, maintenance and restoration of the health of an individual this is exempt from VAT. In many cases it could be argued that cosmetic surgery procedures would fall into one of these categories, as the procedure is for example, treating scar tissue arising from burns or other surgery, or is aimed at improving the mental health of an individual who is struggling with certain aspects of their appearance.
We are continuing to see examples of where HMRC are attempting to limit the types of procedures which qualify for exemption and exclude those where they consider that the purpose of the procedure is cosmetic. Consequently, the VAT treatment of many procedures, which may have previously been treated as exempt from VAT, is now being challenged.
HMRC’s guidance states that the VAT treatment of each cosmetic surgery procedure should be considered on its individual merits. They accept that the procedures will be exempt where they are undertaken as part of a healthcare treatment programme. In practice, to be seen as part of a healthcare treatment programme, HMRC would want to see evidence that an individual has initially held a consultation with their local General Practitioner (GP) after which a referral is made by their GP to an appropriate surgeon, who would then carry out at least one further consultation.
As many cosmetic procedures are either not available for funding by the NHS, or where funding is available, but due to lengthy waiting lists, patients may choose to refer themselves directly to a private clinic. As a result, obtaining proof of a GP referral is unlikely. Although the absence of a GP referral is not conclusive, HMRC will then look more closely at other medical records available to determine whether the procedure has been carried out for purely for cosmetic reasons. Where further medical notes are limited HMRC are likely to take the view that VAT should have been charged on the cosmetic procedures.
There have been several cases heard by the VAT Tribunal over the last couple of years, where HMRC have been successful in arguing that certain procedures are cosmetic and therefore should attract VAT. To date these cases have considered the VAT treatment of hair transplants, laser treatments, Botox injections and other fillers and skin treatments. However, we are aware that HMRC are also challenging the VAT treatment of many invasive procedures which require both a surgeon and an anaesthetist to be present.
In the recent hair loss treatment cases referred to above, the companies had applied differing VAT treatments. In the case of Mark Glenn Limited the appellant provided a hair integration technique, known as the “Kinsey System” which involved a process including an initial consultation, followed by wig creation, fitting and ongoing maintenance. The appellant had treated this as a supply of services of adapting goods designed for disabled people, which qualified for zero-rating. HMRC challenged this position and raised an assessment to recover VAT which they considered was payable on the income received. The First Tier Tax Tribunal concluded that significant hair loss or baldness is not a chronic illness or disability and therefore the services carried out by the appellant did not meet the conditions for zero-rating and were subject to VAT at 20%.
The appellant in the case of Advanced Hair Technology Limited argued that hair transplantation services were exempt as they should be viewed as medical care, provided as a treatment for androgenetic alopecia (AGA). The First Tier Tribunal focused on what they considered to be the primary purpose of the procedure. The Tribunal concluded that the treatment was carried out for cosmetic rather than therapeutic purposes because AGA is “a common and normal condition” which takes place as part of the ageing process, for which the majority do not seek to treat by undergoing a hair transplant. In essence, there was not a medical “need” for the intervention. Consequently, the services provided did not meet the conditions required to qualify for exemption.
HMRC have stated that each case should be considered on its individual merits. The impact of this is that certain procedures will be exempt from VAT, and in some cases an identical procedure, carried out on a different individual for different reasons may attract VAT. This point should be considered when drafting marketing material, for example, a website listing various procedures and the respective pricing.
Consideration should also be given to the documentation which is currently completed to establish whether this accurately reflects and provides sufficient detail to show that the procedure should be treated as exempt healthcare, rather than the procedure being carried out for cosmetic reasons.
We would recommend that providers review their current position to establish whether they feel comfortable that where VAT exemption is being applied, they have the necessary documentation in place to support this, should this position be challenged by HMRC.
If you would like to discuss this further, please contact Robert Marchant, or your usual Crowe contact.
