Disclaimer: It is important to note that the classification of a treatment as either cosmetic or medical can be complex and may depend on factors such as the intended purpose of the treatment and the qualifications and expertise of the practitioner providing the treatment. Practitioners should seek professional advice and guidance to ensure that they are complying with all relevant VAT regulations for aesthetic treatments.

Many medical aesthetic practitioners mistakenly think that because they are medically qualified, every treatment they carry out is exempt from VAT. Others believe that because the products they use are prescription only medicines or medical devices, again, they are exempt from VAT. Or that because aesthetic treatments improve someone’s confidence and self esteem, they are medical and are VAT exempt. On the other side of the spectrum, some think that because the treatments they carry out improve peoples appearance, they are all cosmetic and VAT is payable.

None of these are correct. Samantha Senior, The Aesthetics Accountant says

“I’ve been working with medical aesthetic practitioners for many years now, and it’s getting increasingly problematic how many myths there are still circulating in the industry.”

In this article, we will cover what VAT is, how it applies to medical aesthetic treatments, what could happen if you’re not compliant.

What is VAT?

VAT (Value Added Tax) is a tax that is applied to most goods and services sold in the UK. It is a tax on the value added at each stage of production and distribution, from raw material to the finished product or service.

VAT is currently set at a standard rate of 20%, although some goods and services are subject to a reduced rate of 5%, and others are exempt from VAT altogether.

Businesses that are registered for VAT are required to charge VAT on their sales and must also pay VAT on their purchases. They must then account for the difference between the VAT they have charged on their sales and the VAT they have paid on their purchases, and pay this amount to HM Revenue & Customs on a regular basis.

VAT is an important source of revenue for the UK government and is used to fund public services such as healthcare, education, and social welfare programs.

Who needs to register?

In the UK, businesses must register for VAT if their taxable turnover (the total value of their sales that are not exempt from VAT) for the previous 12 months exceeds the registration threshold, which is currently £90,000.

Businesses can also choose to voluntarily register for VAT even if their turnover is below the registration threshold, which may be beneficial if they make regular purchases that include VAT, as they will be able to reclaim the VAT they have paid.

If your turnover is at or around £90,000, you should be getting up to speed on all things VAT.

How do I know if a treatment is VAT exempt or not?

Services which qualify for exemptions only when the following conditions are met:

1. The services are within the profession in which the person is registered to practise, and use the knowledge, skills, judgement and experience acquired in the course of his professional training

2. The primary purpose of the services is the protection, maintenance or restoration of health of the individual concerned

https://www.gov.uk/hmrc-internal-manuals/vat-health/vathlt2010

If the answer to both of those questions is YES, then the treatment qualifies for VAT exemption.

• If the primary purpose of the treatment is cosmetic, i.e. the primary reason the person is seeking treatment is because they want their appearance improved, enhance or altered, then the treatment it is NOT VAT exempt.

• If the practitioner delivering the treatment is not a regulated healthcare professional with relevant knowledge, training and experience, then the treatment is NOT VAT exempt.*

Generally, HMRC deem cosmetic aesthetic treatments, such as anti-wrinkle injections, dermal fillers, and skin enhancing treatments like chemical peels, subject to VAT.

However, treatments that are being administered to restore, maintain or protect health, such as treatments for hyperhidrosis, bruxism, migraine and chronic skin conditions are usually exempt from VAT where appropriate patients notes support this classification.

For example, if a patient requires a skin treatment to address a medical condition such as acne or rosacea, and the treatment is prescribed and performed by a qualified medical practitioner, and this is documented thoroughly, then it may be classified as a medical treatment and be exempt from VAT.

If a patient has acne scarring and pitting that is affecting their self confidence, self esteem and is having a negative impact on their professional and social life, then prescribing appropriate skincare and in-clinic treatments to improve the appearance of the scarring and pitting may allow it to be classified as a medical treatment.

Where treatments are primarily cosmetics, for example, a patient has booked in with the intention of you improving their appearance - they want plump lips and a smooth forehead for an event - is unlikely that these treatments will be considered to be VAT exempt. You need to be honest about the reasons patients are seeking treatment and whether they are genuinely cosmetic.

There’s another VAT category - zero rated. This is a whole different ball game, which is why it’s important you get professional advice from accountants well versed in the aesthetics industry.

Who decides if a treatment is medical or not?

You.

Following a thorough consultation with your patient, you determine the classification of a treatment as medical or cosmetic.

Your documentation is crucial. If you determine a treatment to be medical, and therefore VAT exempt, the patient questionnaires, consultation notes, diagnosis, treatment plan and photos should all support this decision and be documented thoroughly, appropriately and contemporaneously.

There is no blanket rule that applies to certain treatments or product, regardless of whether a medicine or medical device is involved. VAT exemption is determined on a patient-by-patient, treatment-by-treatment basis. It’s not about what treatment is being carried out, it’s about why it’s being carried out.

How do I document that it’s medical?

When documenting in consultation and treatments notes that a particular treatment is medical rather than cosmetic, it is important to provide clear and detailed information about the patient's condition/concern and the proposed treatment, the completed questionnaires and informed consent, full notes on treatment provided, and the medical necessity of the treatment.

This information should be recorded in a clear and concise manner, using objective language and avoiding any ambiguous or subjective terminology.

Here are some tips for documenting medical treatments in treatment notes:

1. Describe the patient's medical condition thoroughly: Start by providing a detailed description of the patient's medical condition, including any symptoms and the physical, social and pychological impact of their condition/concern. Include any photos or referral letters.

2. Document why the patient is seeking treatment: In their own words, outline why the patient is seeking treatment. Include any additional evidence, such as text messages or email.

3. Explain the medical necessity of the treatment: Clearly explain why the treatment was necessary to treat the patient's medical condition, and how the treatment will help to improve the patient's health and/or wellbeing, detailing what improvements you expect to see. Documenting the outcome of the treatment and evidence of the patients condition improving or not. Even if there has been no, or limited, improvement, it all evidences the medical nature of the treatment.

4. Obtain and document appropriate consent: This is a pre-requisite for medical treatments.

5. Avoid using cosmetic terminology: When describing the treatment itself, avoid using any terminology that could be interpreted as cosmetic in nature. Instead, use medical terminology that accurately describes the treatment and its purpose.

6. Notes must be contemporaneous: Adding to or editing treatment notes from weeks, months or years ago will not stand up to scrutiny. Ensure that you have sufficient time in your day to ensure your notes are accurate.

7. Get your accounts in order from the start: Set up a system from the get go that tallies up the total medically exempt sales, zero rated sales and cosmetic sales each day - that can either be inputted in to your accounting system or sent to your accountant. This shows you the clear split, even is you’re not VAT registered or even near the VAT threshold. This shows HMRC that you’re acting responsible in your accounting habits and can clearly show them - if they visit - that you split the different categories of treatment.

By providing clear and detailed documentation of the medical necessity of a treatment in the consultation and treatment notes, practitioners can help to ensure that the treatment is properly classified as medical rather than cosmetic, which is important for VAT purposes. Should you ever need to provide this evidence, you won’t need to panic!

It’s OK, I’m not likely to be inspected or investigated?

Maybe, but if you are investigated for VAT, you will need to evidence to HMRC that the treatments you’ve reported as VAT exempt were medical, rather than cosmetic. The burden of proof is on you.

A VAT inspection can happen at any time, common triggers for an inspection include: 

• Compliance history – is there a history of late payments/non-payment of VAT?

• Business sector – does your business operate in a sector that HMRC consider higher-risk regarding VAT irregularities. The beauty sector is one of the high risk sectors.

• Inconsistent VAT reports - Are your business VAT returns all over the place?

• Credibility checks – HMRC compares submitted VAT returns to the average industry rates to check for anomalies.

Where HMRC finds significant errors, the inspection will be escalated into an investigation. If an investigation is opened, HMRC can expend the investigation into other taxes, not just VAT.

HMRC are entitled to look back at your accounting from the start of your business, if you’re not VAT registered, but can only go back 4 years if you are VAT registered. Either way, this can be stressful, especially if your documentation isn’t up to scratch.

But no one gets investigated for VAT in aesthetics, do they?

HMRC now have a specialist project team targeting the aesthetics sector.

This has led to a number of high profile cases where medical aesthetic practitioners have been investigated for VAT related to their services. In each case, the courts have rules in favour of HMRC.

The Skin Rich Ltd who were involved in a VAT tribunal in June, 2019. The tribunal ruled that the injectable and laser treatments they carried out were cosmetic in nature, so subject to £21,064 VAT payable.

HMRC decided that the services were standard-rated because “clients sought treatment principally for cosmetic reasons.”

Skin Rich Ltd (S) argued for exemption on the basis that botox is a “medical procedure” and treatments “enhance their self-confidence and influence their quality of life.”

After a very detailed analysis, the first tier tribunal agreed with HMRC that the procedures were given for cosmetic reasons and were standard-rated.

Illuminate Skin Clinics Ltd were involved in a First-tier Tribunal. The Tribunal concluded that the services Dr Sophie Shotter offered were not exempt within the proper meaning and effect of the relevant VAT legislation.

The Tribunal drew attention to the following:

Clients were making use of the services as Illuminate Skin Clinics because they wanted to. There was no diagnosis of a health disorder, no careful investigation of symptoms or analysis of a client’s medical history, and no medical referrals.

The starting point of medical care is a diagnosis and no diagnoses were documented, so the treatment was not undertaken in response to any disease or medical disorder.

Aesthetic-Doctor.com Ltd a cosmetic clinic that provided botox and hair transplants among other treatments was subject to a First-tier Tribunal. The Tribunal deemed that these treatments fell outside of the medical exemptions. That Dr Darren McKeown did not diagnose, treat or cure health disorders or disease. An assessment for £1.65m was subsequently issued. 

The penalties of a VAT investigation mean HMRC can then fine you 100% of any VAT you owe. If an investigation proves you owe £10,000, HMRC can decide if they want to charge you up to 100% in penalties. i.e. You owe £10,000 in VAT repayments AND £10,000 in penalties.

Penalties: an overview for agents and advisers - GOV.UK (www.gov.uk)

Not forgetting that an investigation will also incur the fees of accountants and solicitors to represent you.

The Take Home

It is important for practitioners in the medical aesthetic industry to ensure that they are complying with all relevant VAT regulations to avoid potential investigations and penalties.

Of course, there will always be those with poor documentation, who put EVERY Botox treatment down as VAT exempt. And on the other end of the spectrum will be those who are so overwhelmed by all things accounting they put EVERY treatment down as VATable.

But, if you’re a registered medic, the VAT exemption is there for you for any treatments you carry out to restore, protect or maintain your patients health. So, if you’re close to, or have exceeded the £85,000 VAT threshold, make sure your documentation is in order.

Samantha Senior, The Aesthetics Accountant, fact checked this blog and added:

VAT inspections are exorbitant, both in terms of cost and time lost, but also the anxiety it causes the clinic owner (even when there is no wrongdoing). That’s why we focus on a prevention rather than cure ethos, getting practitioners to get it right from the start. It’s still very frustrating to see a significant amount of misinformation circulating within the industry and it is reassuring that platforms like Glowday are getting the correct information out to their members.”

*There are some exceptions – if the non-Healthcare Professional is directly supervised by the Registered Healthcare Professional, then it can be allowable. From 1st May 2023 this applies to Pharmacists too. As stated previously, seek advice from a tax specialist.