Determining the correct VAT treatment of supplies made by skincare and aesthetic clinics can be particularly challenging for the inexperienced.
By Chris Davies
Who undertakes the treatment, the reason for the treatment and the nature of the treatment itself can all affect the determination of the correct VAT outcome.
There is a well-known exemption from VAT for services performed or directly supervised by certain medical and health professionals. For this purpose a health professional is one registered on the appropriate statutory register listed in VATA 1994, Sch 9, Gp 7, item 1. and includes medical practitioners, osteopaths, chiropractors and many more.
But even if the individual meets the criteria of a health professional, the services will only be exempt if both:
- The services are within the profession in which they are registered to practice; and
- The primary purpose of the services is the protection, maintenance or restoration of the health of the person concerned.
If the service qualifies as VAT exempt then any supplies of services accompanying the treatment e.g. bandages, drugs, medicines or prostheses, administered or applied to the patient in the course of the treatment is also regarded as exempt.
Cosmetic services are generally considered to be exempt where they are undertaken as an element of a health care treatment programme but treatments undertaken purely for cosmetic purposes are regarded as standard rated.
VAT registered businesses are entitled to recover input VAT on costs relating to their taxable supplies, but businesses that make exempt supplies may not recover VAT on costs relating to exempt supplies.
Often a clinic will make supplies of both standard rated and exempt services and these businesses are known as “partially exempt” for VAT purposes. There are special rules for the calculation of input VAT involving the allocation of input VAT to standard rated supplies, exempt supplies and often a partially exempt calculation with reference to certain de minimis limits.
It is not always easy to determine where the line between medical care and purely cosmetic treatment is drawn and a number of cases have been before the First Tier Tribunal to determine this line in each particular case.
Aesthetic clinics and VAT tribunals
The relatively recent case before the FTT of Illuminate Skin Clincs Ltd (ISC) highlighted some of the key issues. The sole director Dr Shotter was a member of the GMC. Dr Shotter maintained that ISC was providing exempt medical services.
In general Dr Shotter’s patients came to her without referral from another practitioner and already with an idea of their treatment in mind. Although Dr Shotter kept notes of the conversations with her patients they were merely an aide memoire and there was no evidence of any diagnosis of medical condition or treatment to cure any disease or disorders.
Dr Shotter further argued that she provided “holistic care” and whilst it was not disputed that her patients probably left happier than when they arrived, that in itself did not meet the definition of medical services.
As a consequence but both the FTT and HMRC agreed that the services were not medical in nature and that ISC was providing standard rated VAT services.
Because of the complex nature and often grey areas with regard to VAT, it is important that any aesthetic or cosmetic clinic looking for an accountant to work with them is confident that they have a full understanding of the rules surrounding their business. Having worked with clinics over many years, you can be assured that our directors and staff are knowledgeable and experienced in this field.
More information
Take a look at the services our specialist accountants provide to aesthetic clinics and cosmetic practitioners, and get in touch to see how we can help your clinic.
