Whether some procedures purportedly carried out for medical purposes qualify for VAT exemption has always been a grey area. Today I’m looking at a recent VAT tribunal case when Skin Rich Ltd, failed in their attempt to obtain a ruling that Botox and nail fungal treatments qualified to be exempt from VAT.
The basic Medical VAT Exemption rules
In order to qualify for VAT exemption, a medical service or treatment supplied to a patient needs to get past three separate hurdles:
- It must be carried out by a registered health professional
- It must be carried out in the field for which the professional is registered
- The treatment must be linked to the protection, maintenance or restoration of the patient’s health
Normally there isn’t an issue, so if for example you visit your registered dentist who inserts a filling in one of your teeth, this service is exempt from VAT because good teeth are an important part of your health.
However, if he examines your head during the same visit and notices that you are suffering with chronic dandruff, recommends a treatment and charges you £50, this fee would be subject to VAT because he is only registered as a dentist and not as a dermatologist.
Cosmetic Treatment VAT
It has always been a bit of a grey area as to whether some medical services are carried out for medical purposes, which are exempt from VAT or for cosmetic reasons, in which case VAT at the standard-rate of 20% must be charged.
The VAT liability of Botox and other injectable treatments was one of the two key issues considered in the case of HMRC v Skin Rich Ltd. HMRC decided that the services were standard-rated because “clients sought treatment principally for cosmetic reasons.”
Skin Rich Ltd argued that an exemption was appropriate on the basis that Botox is a recognised “medical procedure” and the treatment clearly enhances the patient’s self-confidence and has a positive influence on their quality of life and overall wellbeing.
After a very detailed analysis, the first-tier tribunal agreed with HMRC that whilst the procedures were “medical”, the primary reason for having such treatments was for cosmetic reasons and therefore they must be considered to be standard-rated.
In the view of the court, “SRL has not satisfied us that the principal purpose of the injectable treatments is to protect, restore or maintain the health of the individual rather than for cosmetic reasons.”
Nail fungal treatment, surely VAT Exempt?
You might ask yourself, how on earth could nail fungal treatment not qualify as a medical service? The answer in the Skin Rich case is because the treatments were not carried out by a registered health professional.
Miss Lorraine Cleaver (director and shareholder of SRL) carried out the treatments using a laser process that attacked the fungus. The court accepted that the treatment was clearly medical, and that Miss Cleaver was highly trained; and also that her company had the appropriate medical liability insurance policy but found that she was not a registered medical professional.
Miss Cleaver accepted this, but then argued that her establishment was in effect a type of private hospital as the premises were regulated, but this alternative argument was also rejected by the court.
VAT Tribunal Points arising
This case has made it crystal clear that any businesses which claim VAT exemption for any of their services that they consider fall under the category of ‘medical’, should keep very clear and thorough client files to illustrate the medical, rather than cosmetic, purposes of the treatment.
It is also important to be clear that VAT exemption only applies if the ‘principal purpose’ of a process is to protect, maintain or restore good health. If HMRC questions the VAT classification, the inspector will want to see an analysis of why VAT has not been charged.
I am well aware that doctors are quite rightly reluctant to divulge the information in these files, but the alternative is to probably play safe and charge 20% VAT in borderline cases.
I’ve done a bit of research and found that the cosmetic procedures market in the UK is worth around £4bn per annum, and this figure excludes plastic surgery, so it should be no surprise that HMRC is particularly keen not to lose the nearly £800m VAT involved.