Cosmetic clinic faces up to rejected VAT exemptionby
This VAT case pored over whether aesthetic treatments undertaken by a medical doctor are cosmetic procedures subject to 20% VAT, or medical and thus exempt.
Illuminate Skin Clinics Ltd (ISC) was a private clinic that offered aesthetic treatments such as Botox, skincare, chemical peels and platelet-rich plasma treatments.
The sole director of ISC was Dr Sophie Shotter, a member of the General Medical Council. Dr Shotter had started out as an anaesthetist before deciding to focus on aesthetic medicine in 2012, forming her company in May 2014 and registering it for VAT in August 2014.
ISC had treated its sales made in the quarter to 31 December 2016 as exempt, on the basis they qualified as medical care. However, following a visit by HMRC, an assessment was raised treating the sales as standard rated and requiring payment of the shortfall.
ISC appealed this assessment to the first tier tribunal (FTT) on the grounds that while it “was aware that treatments with no medical purpose carried out for purely cosmetic reasons would be taxable, such supplies were not routinely carried out by the business”.
Medical services can be exempted for VAT purposes subject to VATA 1994 Schedule 9 Group 7. In ISC’s case, only Items 1 and 4 were potentially applicable.
Item 1 includes the supply of medical care by a registered medical practitioner and Item 4 the provision of care, medical or surgical treatments in a hospital or state-regulated institution (it was agreed by all parties that ISC was such an institution).
Section 2 of VAT Notice 701/57 expands on this slightly to say a registered health professional can exempt their services provided they are made within the specific profession in which they are registered. Said services must also be primarily for the protection, maintenance or restoration of the health of the patient.
The notice states that this would include the diagnosis of illnesses and analysis of scans or samples. This was echoed in the Mainpay case where the court of appeal found that “medical care” meant “diagnosing, treating and, in so far as possible, curing diseases or health disorders”.
The issue was, while Dr Shotter was undoubtedly providing services within the scope of her medical registration, both HMRC and the FTT agreed that the services were not medical in nature.
Dr Shotter did not routinely diagnose her patients as the first step in a treatment plan, nor did patients expect this to be the case. Rather, they came to her with a specific treatment already in mind and it was arguable as to whether these treatments even related to a specific disease or health disorder.
HMRC had argued that referrals from another medical practitioner, notes of a diagnostic process or a detailed treatment plan would all potentially have supported an exemption claim. However, no such evidence was supplied by Dr Shotter, even after HMRC requested a wider sample of documents.
In short, Dr Shotter’s services did not relate to “diagnosing, treating and, in so far as possible, curing diseases or health disorders” as required by the Mainpay case.
Dr Shotter’s process was to complete an initial medical history form, covering the patient’s concerns, her initial examination and her plan. A section for “diagnosis” was included, however the FTT noted that none of the examples they saw showed recognised health disorders, nor had the patients been referred to her by another professional (with seemingly rare exceptions).
All in all, Dr Shotter’s records appeared to be more aide-memoires than detailed medical notes, especially when compared to the detailed referral notes occasionally received from other medical professionals.
Dr Shotter argued that she provided “holistic care”, which the FTT rejected. It was undoubtedly true that patients entered Dr Shotter’s care unhappy and (sometimes) left it happy. However, this did not give the treatment a medical, or even necessarily a therapeutic, purpose.
An example was given of a patient diagnosed (elsewhere) as depressed who had a skin tightening procedure. The patient did not come to Dr Shotter to cure their depression, merely to tighten their skin (which may then have had the side effect of helping their depression), therefore this was not “medical care”.
The FTT concluded that the exemption conditions had not been met and dismissed the appeal.
Dr Shotter would have done well to read Neil Warren’s advice in his article on the Skin Rich Ltd case, particularly where he recommended the keeping of very clear and thorough client files showing that the principal purpose of the treatment was medical, not cosmetic.
The lack of evidence of a medical diagnosis, coupled with the nature of the field Dr Shotter operated within, all added up to a fairly easy win for HMRC.