Botox blues for self-employed aesthetics professionals (including doctors) who thought they didn’t need to pay VAT
If you’re a self-employed professional in the booming cosmetic and aesthetics sector, you could possibly owe years of back tax because of a technicality. But why are many working in the sector only finding out now?
HMRC has turned its focus to the industry, with an estimated £9.5 billion in unpaid VAT now under scrutiny. This comes as a result of many providers mistakenly believing their services are VAT-exempt simply because they are delivered by medical professionals.
HMRC’s position, as confirmed by a government notice, is that for a service to be VAT-exempt, its primary purpose must be the “protection, maintenance or restoration of the health of the person concerned”.
If a procedure—such as Botox, fillers, or a hair transplant—is primarily for aesthetic reasons, it is considered a taxable supply. According to the government, the burden of proof is on you, the practitioner, to provide documented evidence that the treatment was for a genuine medical purpose.
Recent tribunal cases are reinforcing HMRC’s stance. In the case of Illuminate Skin Clinics Ltd, a tribunal ruled that even though procedures were performed by a qualified doctor, they were not “medical care” and were therefore taxable.
Another highly publicised case, Aesthetic-Doctor.com Ltd, resulted in a retrospective VAT bill of approximately £1.6 million, with liabilities stretching back over a decade.
This isn’t just about a few high-profile cases; it’s a clear signal that HMRC is actively investigating the industry.
How to prepare and what to do next
If you are concerned about your VAT position, especially if your business is nearing or has surpassed the VAT registration threshold (currently £90,000 in taxable turnover), it’s important to act now.
- Review your services: Conduct a thorough review of your services to determine which are genuinely for medical purposes and which are primarily aesthetic. Ensure your patient records for “medically necessary” treatments include clear diagnoses and justifications.
- Voluntary disclosure: If you find you have underpaid VAT, you can make a voluntary disclosure to HMRC to correct your position. This is often seen as a proactive step that can help avoid significant penalties.
- Seek professional advice: Consider consulting with a tax specialist who understands the nuances of the aesthetics industry. They can help you with your review and, if necessary, assist with any communication with HMRC.
Setting up a payment plan with HMRC
If you do find yourself with a VAT liability, HMRC may be willing to work with you on a payment plan, known as a Time to Pay (TTP) arrangement. This allows you to spread your payments over a manageable period.
You can apply for a Time to Pay arrangement online through your HMRC business tax account.
The HMRC website provides information on how to set up a payment plan and what to do if you’re struggling to pay your tax bill.
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