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Cosmetic Surgery and VAT

Over the past few years there has been a significant increase in the provision of cosmetic surgery and procedures with practitioners now offering a wide range of services.

cosmetic surgery and vatIn terms of the VAT treatment of the revenue, VAT exemption is available in certain fairly limited circumstances.   In simple terms, the spirit behind VAT exemptions is that they are focused on basic societal needs and the common good such as education, health, charity etc.  This means that many of the VAT exemptions are restricted in terms of the profile of the organisation or provider and also by the scope of the services the exemption applies to.  Care is therefore needed to ensure all relevant tests are met to qualify for exemption.

So far as healthcare is concerned, the VAT legislation allows the following medical services to be VAT exempt, with both tests needing to be met for VAT exemption to apply:

  • relevant services provided by registered medical professionals (registered in the register of medical practitioners – similar provisions exist for dentists and pharmacists);
  • the relevant services are described as the ‘provision of medical care’

In terms of the profile/status of the provider, this can also include non registered professionals who are supervised by registered medical practitioners (conditions are attached to the level of supervision).  Assuming this test is met, the key question in relation to cosmetic surgery is whether the services constitute ‘medical care’.

Cosmetic Surgery and VAT

Cosmetic surgery has been the focal point of recent VAT litigation in the Illuminate Skin Clinics Ltd case.  ‘Medical care’ is not defined in VAT legislation but is described in HMRC guidance as the protection, maintenance or restoration of the health of the person concerned (this definition came from an earlier ECJ case on healthcare exemption).    This might for example include tests to diagnose a specific medical condition and the provision of the treatment.  HMRC cite the Ultralase Medical Aesthetics Ltd as the leading case confirming VAT exemption does not apply to cosmetic procedures.

At the heart of the issue with VAT exemption for cosmetic surgery is the question of whether the services are provided to address a genuine medical condition impacting the patient’s health, or to effectively make them feel better about themselves.  There are scenarios where a psychological assessment has been carried out which recommends cosmetic procedures to improve the patient’s mental health.  Even in these cases this may not be sufficient to qualify for VAT exemption.  In the Illuminate Skin case, it seems there was a conclusion that making the patient feel better in themselves due to the positive psychological impact was not sufficient to meet the test for exemption.  The logic here is presumably that a new hairstyle or new clothes could arguably have a similar positive impact.   This therefore puts some distance between the true spirit of the healthcare VAT exemption and the services provided albeit there will be countless situations where there is far less distance.   There appears to be an expectation that there needs to be an element of professional medical diagnosis involved, albeit this could presumably be provided by a fellow medical practitioner assessing what is required.    In any event the principle purpose of the procedure must be to protect, maintain or restore health.  Even then, the resulting procedure needs to go beyond improving the mental health of the patient.    It can be difficult to provide specific guidance when each patient will have a different set of circumstances and therefore a different analysis of the ‘primary purpose’ test.  As a result it is likely more cases will be litigated – the decisions may shed more light on this complex area but equally may cause further lack of clarity in the event they appear contradictory to cases already settled or HMRC guidance.

 

Why is it Important to Have Certainty of the VAT Treatment?

Businesses operating in the B2C environment are not able to go back to their customers to claim additional amounts of VAT in the event their services are deemed VATable when they have assumed they are VAT exempt.  The impact on the business is likely to be significant, particularly if there is a retrospective element (VAT errors going back 4 years need to be disclosed).  This can have an impact on future exercises in fund raising or business disposal as it is likely to be high-lighted in related due diligence exercises.

If you are concerned about whether the services you provide qualify for VAT exemption please get in touch.

The VAT Consultancy is highly experienced and provides relevant and practical advice to help you deal with the VAT and customs duty issues your organisation faces.  We provide global VAT and customs duty advice and VAT compliance services.  To discuss how we can help contact us today