Navigating the VAT minefield as an aesthetic clinic in the UK

As aesthetic treatments continue to grow in popularity, clinics and practitioners in this booming industry face increasing scrutiny from HMRC regarding the VAT treatment of their services. Recent tax cases have highlighted HMRC’s active targeting of cosmetic clinics, challenging treatments that do not meet the criteria for exempt VAT treatment. This blog post aims to provide a comprehensive overview of the current VAT guidelines and explore the implications of recent tax rulings for aesthetic clinics in the UK.

Medical vs. cosmetic treatments

Under current HMRC guidance, the VAT exemption for medical services hinges on two key conditions: 1) the services must be within the profession in which the practitioner is registered to practice, and 2) the primary purpose of the services must be the protection, maintenance or restoration of the health of the individual receiving the treatment.

For the purposes of VAT, medical services (including medical care and treatment) are restricted only to services which fulfil condition 2. This includes the diagnosis of illnesses, the provision of analyses of scans or samples and helping a health professional, hospital or similar institution to make a diagnosis.

We have highlighted below some recent tax cases where HMRC have been successful in arguing that treatments carried out by Health Professionals are “cosmetic” (subject to 20% VAT) rather than “medical” treatments (VAT exempt).

This distinction between medical and cosmetic treatments has been the subject of intense scrutiny in recent tax cases. In the case of Skin Rich Ltd [2019] TC 07310, the First-tier Tribunal ruled that the appellant’s range of specialist skin care treatments, including injectables like Botox and dermal fillers, did not qualify as principally aimed at protecting, restoring or maintaining an individual’s health, despite being administered by medical professionals.

Similarly, in Illuminate Skin Clinics Ltd [2023] TC 08836, the tribunal found that the cosmetic procedures provided did not fall within the definition of ‘medical care’ and were therefore subject to VAT, even though the procedures were performed by or under the direct supervision of qualified medical professionals.

Proving medical purpose

These cases underscore the burden of proof that lies with aesthetic clinics to prove that their treatments are primarily for medical purposes and not merely cosmetic. In Epem Ltd [2023] TC 08865, the appellant failed to provide sufficient evidence of the qualifications of their practitioners, or the assessments carried out, leading the tribunal to conclude that their services appeared to be performed for cosmetic reasons rather than the treatment of diseases or health disorders.

Similarly, in Aesthetic-Doctor.com Ltd [2024] TC 09030, the tribunal ruled that the mere involvement of qualified personnel was not enough to qualify for the VAT exemption. The appellant was unable to provide credible evidence that they were providing medical care as defined by diagnosing, treating and curing diseases or health disorders.

The importance of maintaining meticulous records

The key takeaway from these cases is the importance of maintaining detailed records for each patient, clearly demonstrating that a diagnosis has been made and that the treatment is primarily for a medical purpose. Aesthetic clinics must be prepared to produce sufficient evidence, when asked to do so, to support their VAT treatment of services.

It is crucial to remember that the burden of proof lies solely on the taxpayer, and failure to meet this burden can result in costly fines, penalties and retrospective VAT assessments.

The VAT registration threshold

It is also worth noting that as of 1 April 2024, the VAT registration threshold in the UK is £90,000. This means that any aesthetic clinic with taxable supplies exceeding this threshold will be required to register for VAT and comply with the associated reporting and record-keeping obligations.

Professional guidance

Navigating the complex VAT landscape for aesthetic clinics can be a daunting task, fraught with potential pitfalls and costly consequences for non-compliance. This is where seeking professional guidance from experienced accountants and tax advisors can prove invaluable.

AF Tax Solutions Limited specialises in the medical and aesthetics industries so clinics can benefit from tailored advice and support to ensure they are correctly applying VAT treatment to their services. This includes assistance with VAT registration, compliance with Making Tax Digital requirements and ongoing advisory services to stay abreast of any changes in regulations or HMRC guidance.

Moreover, we can provide a range of additional services, such as accounting, tax planning and business advisory services, which can help aesthetic clinics streamline their operations, maximise tax efficiency and achieve sustainable growth.

Prioritising compliance and professional support

As the aesthetic industry continues to thrive, clinics must remain vigilant and adhere to HMRC’s guidelines and proactively address any potential VAT compliance issues. By maintaining meticulous records, seeking professional guidance and staying informed about the latest developments in tax regulations, aesthetic clinics can mitigate the risk of costly penalties and position themselves for long-term success in this dynamic and competitive market.

At AF Tax Solutions Limited, we understand the unique challenges faced by businesses in the aesthetics industry. Our team of experienced professionals is dedicated to providing tailored solutions and expert guidance to help our clients navigate the complexities of VAT compliance, ensuring they remain compliant while maximising their tax efficiency.

Contact us today to learn more about how we can support your aesthetic clinic and ensure you stay ahead of the curve in this ever-evolving regulatory landscape.