The supply of goods and services in the UK is subject to Value Added Tax ("VAT"), currently at 20%. Categories of medical care have always been exempt. However, a number of European decisions make it clear that exemption was only for those services of medical professionals which have the principal purpose of diagnosis or treatment of diseases and health disorders.
In the Tax Tribunal decision in Skin Rich Ltd v Commissioners for HMRC (2019) Judge Zarman, having summarised the state of the law extensively and heard evidence to the effect that Botox can be used to treat medical conditions, concluded that the treatments were primarily for cosmetic reasons and were not, therefore, exempt for VAT. In light of this decision it does seem likely that many registered medical professionals and businesses such as aesthetics clinics or private hospitals will find that they have long been inadvertently breaching the rules about when to charge VAT to patients or customers.
Could there be consequences for Tax Professionals?
Skin Rich will likely have consequences for tax advisers both immediately and further down the line.
It is likely that many healthcare professionals and business will want advice in the near future about VAT, so there will be an immediate need to ensure that tax advisers are up to date on Skin Rich and understand both the technical and practical issues that it raises. Needless to say, no reasonable tax professional should be advising a medical business in the aesthetics sector without reference to that case and the European cases it cites.
In due course, it is inevitable that some medical professionals and business will be found by HMRC to owe unpaid VAT, and also interest and penalties. In those situations professional negligence claims could follow against the relevant tax professionals. After all, the Skin Rich decision does not make any new law, and it is not based on a particularly unusual set of facts. Indeed, the decision seems to reflect HMRC's view as set out in 2007 in VAT Notice 701/57 Health Professionals which stated that HMRC "generally accept that cosmetic services are exempt if they are undertaken as an element of a health care treatment programme. Where services are undertaken purely for cosmetic reasons, they will be standard rated."
