Position at May 2007

It is no secret that Treasury/Her Majesties Revenue and Customs (HMRC)  have their sights on VAT revenue for ‘cosmetic’ treatments and a March 2007 HMRC Bulletin explicitly claimed ‘cosmetic’ use of lasers as VATable services, referencing VAT Notice 701/57 and establishing that:

• Each ‘cosmetic’ case will need to be considered on its individual merits
• ‘Cosmetic’ services are generally exempt if part of a ‘Healthcare Treatment Plan’
• ‘Purely’ cosmetic services will be standard rated for VAT

Questioning by IHAS  raised HMRC clarification letter at May 2007 confirming the status quo as item 4 of the VAT Act 1974, providing exemption from VAT for:

• A HealthCare Professional  undertaking 
• A Healthcare Treatment Plan in 
• A State Registered  premises.

This definition has applied across ‘cosmetic’ services since May 2007 and re-established the exempt position for ‘medical’ as opposed to ‘beauty therapist delivered’ laser services.

Key changes at Oct 1st 2010

Nothing changes for HMRC with advice not updated to consider the implications of regulatory change. However, circumstances certainly do change with new legislation deregulating layers of previously regulated services  and Care Quality Commission (CQC) definitions creating new categories of ‘purpose’ that not only bring ‘purely cosmetic’ laser services into the scope of VAT from Oct 1st but potentially all ‘ purely cosmetic’ treatments. 

These new CQC definitions arise from registration screening where CQC have created ‘scoping’ definitions to place classes of provider and individual cases on one side of a or the other ‘registerable’ line. Some of these interpretations include:

• The principle of ‘doctor acting as beautician’ – if the treatment can be provided by someone who is not a Health Care Professional, it is not a registerable activity.
• The ‘purpose’ of the activity separates ‘purely cosmetic’ delivery with treatments for ‘Disease, Disorder or Injury’ (DDI) being registerable. .
• The scope of regulation and registration under CQC change from ‘premises’ to ‘purpose’ of activity – if a ‘purely cosmetic’ procedure takes place in a registered premises, it is not a regulated activity

These changes are significant for they effectively modify the terms of the above ‘item 4 VAT Act 1974 exemption’ bringing all ‘purely cosmetic’ services potentially nto the scope of VAT.

It is unknown at this time how various EU Directives might impact on the position – they well might and advice is currently being sought.

Implications

A HealthCare Professional in registered premises, using otherwise registerable techniques might not be regulated if the purpose of the procedure is deemed by CQC to be ‘purely cosmetic’.

• Just because the treatment provider is a Health Care Professional doesn’t mean that the treatment is necessarily registerable – or VAT exempt.
• Just because the treatment is medical in nature doesn’t mean that the treatment is necessarily registerable – or VAT exempt.
• Just because the service is delivered from a Care Quality Commission registered facility doesn’t mean that the treatment is necessarily registerable – or VAT exempt.

However, services that continue to fulfil ‘Item 4 VAT exemption’ remain registerable and VAT exempt – even for the delivery of cosmetic services, so long as their purpose is not ‘purely cosmetic’. Any indication of Disease, Disorder or Injury may provide registerable and VATable purpose.

HMRC have recently commented to BMA that VAT eligibility would be determined by the surgeon  on a ‘case by case’ basis with HMRC having the right to inspect notes relating to the validity of this determination  but, the fact is that there is little case history here – Health Care treatments have traditionally been VAT exempt but government seeks to redefine its way to claiming revenue on first laser and light, then injectibles and finally ‘purely cosmetic’ surgery by a patient HMRC who will establish precedent rather than legislation to widen the scope of VAT in cosmetic procedures.

Conclusion

While the consumer has been left to take responsibility for making difficult decisions on efficacy and safety in a liberalised market, the service provider has been left with ‘determining’ where the dividing line between ‘cosmetic’ and ‘medical’ falls, with HMRC reserving the right to challenge any ‘determination’. 

It is proving very difficult for service providers to ‘determine’ where any particular treatment might fall on the cosmetic-medical continuum for the definitions are neither detailed nor coherent; the same treatment can fall in multiple places according to its ‘purpose’ . 

In any case, the service provider must make the correct determinations for HMRC are clearly able to challenge and the only entirely safe determination would be for VAT to be raised on any procedure carrying a cosmetic element.

However, there does still remain an argument to support VAT exemption in a range of situations – so long as all elements of the ‘item 4 VAT Act exemption’ remains present.

Consequently, we believe that ‘cosmetic’ services remain exempt from VAT where they are delivered for the purpose of treating Disease, Disorder or Injury 

• Under the supervision of a Health Care Professional 
• According to a Health Care Plan 
• In a State Registered facility.

Of course, it remains to be seen how HMRC will assess any determination but it seems clear that any service that does not fulfil all three criteria will not be exempt from VAT under any circumstances.