Cosmetic Clinics and VAT: What You Should Know

Cosmetic Clinics and VAT What you Should Know

Are you the owner of a cosmetic clinic and uncertain about your VAT obligations? If so, this blog is tailor-made for you.

Being a proprietor in the cosmetic clinic industry within the UK necessitates a thorough understanding of industry-specific regulations. HMRC rigorously enforces distinct sets of rules tailored to each sector, and failing to comply can lead to regulatory fines. The domain of VAT brings with it its own unique set of regulations and guidelines, which apply to various industries, including cosmetic clinics.

In this blog, our primary objective is to demystify the complexities of VAT taxation as it pertains to the clinic environment. We’ll start by delving into a real-world scenario involving Illuminate Skin Clinics, Ltd. This cosmetic clinic found itself entangled in a legal dispute with HMRC stemming from issues of VAT non-compliance. The implications of this case reverberate throughout the industry. Following this, we’ll shed light on the pertinent VAT rates applicable to cosmetic clinic operations. Join us as we navigate through this blog for comprehensive insights.


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Illuminate vs. HMRC: A Case Study

In a recent development with significant consequences for the industry, the First Tier Tribunal (FTT) issued a verdict in 2023. This ruling stemmed from an appeal lodged by Illuminate Skin Clinics Ltd, a UK-based company specializing in cosmetic treatments spanning aesthetics, skincare, and wellness. Illuminate had initially registered for VAT in 2014, only to deregister in 2017. However, their encounter with VAT-related challenges began in 2019 when HMRC determined that the company was no longer eligible for VAT exemption.

This decision was reached subsequent to an HMRC examination of the clinic in 2019, which led to the conclusion that the VAT tax refunds claimed by Illuminate for the tax years spanning 2012 to 2016 were no longer applicable. HMRC’s position rested on the belief that the services and products provided by Illuminate did not meet the criteria for VAT exemption. In response, Illuminate chose to dispute this decision, elevating the matter to the FTT.

Following a protracted and arduous four-year legal battle, the FTT finally rendered its verdict in 2023. The tribunal’s ruling affirmed that, given that the nature of the services and products offered by Illuminate did not align with the classification of medical care, VAT would indeed be applicable. Further exploration into the ramifications of this decision is warranted.


Why Isn’t Cosmetic Treatment Considered Medical Care?

The FTT issued the ruling because it was convinced that the company’s services did not align with the definition of medical care. In accordance with the stipulations of both the First Tier Tribunal (FTT) and the legal framework in the UK, medical care encompasses activities related to the diagnosis, treatment, or mitigation of diseases or health conditions. Significantly, these services should be oriented towards therapeutic goals.

Unfortunately, the evidence submitted by Illuminate to the FTT did not succeed in substantiating this critical criterion. As per the tribunal’s assessment, the company could not establish that its services inherently possessed therapeutic qualities. Consequently, the verdict did not favour Illuminate Skin Clinics Ltd.


Will Your Business be Affected?

The aftermath of this case holds considerable implications for the cosmetic industry, especially cosmetic clinics. For those in the business of providing treatments like fat freezing, thread lifts, or chemical peels, the prospect of VAT exemption is no longer on the table. Similarly, clinics that offer services such as fillers, facials, and intravenous drips find themselves situated outside the boundaries of what’s deemed medical care. Consequently, a pressing necessity arises to review and revise tax calculations. The pivotal question that lingers is: what will be the revised VAT liability?


How Much VAT Do Cosmetic Clinics Have to Pay?

In accordance with the ruling, the Standard Rate of VAT applies to cosmetic treatments. In the present fiscal year, HMRC has stipulated the standard VAT rate at 20 percent. Consequently, if your services cannot be adequately substantiated as falling within the purview of medical care, the responsibility to remit the tax arises without the prospect of any reimbursement. To proactively navigate this shifting landscape and remain in harmony with evolving trends, it becomes imperative to conduct a thorough reassessment of your tax calculations. This step is crucial to ensuring that your clinic remains fully compliant with the VAT requirements.


How We Can Help You

At AccountingFirms, we acknowledge the shifting terrain in the aftermath of the recent FTT ruling. We extend an invitation to tap into the expertise of premier tax advisors and accountants based in London. Our seasoned team of accountants boasts a profound understanding of the intricate UK tax landscape. Therefore, you are provided with a safeguard against potential penalties. In addition, when you partner with AccoutingFirms, we will provide consistent updates on the latest industry trends.


If you need assistance with VAT taxation, visit AccountingFirms!


Let’s Summarise

It’s established that the UK applies VAT to cosmetic treatments, as these services are not considered medical care. Illuminate’s case study stands as a clear illustration of the necessity to remit VAT. If your services include treatments like fillers, thread lifts, or fat freezing, you will have to pay VAT.

To simplify tax calculations and ensure compliance, seeking the support of a reliable accounting partner well-versed in UK tax regulations is a prudent and advisable step. They can adeptly navigate the intricacies of UK law and assist you in meeting your tax obligations.


We at AccountingFirms understand that it can be hard to file your own taxes in the UK. The tax structure in the UK is very complicated. Therefore, we provide the best tax advisory and accounting services in London. Click here to get an instant quote!