Cosmetic surgery businesses in firing line for HMRC clampdown
HMRC has launched a number of investigations into cosmetic surgery providers for not paying VAT – and cases are likely to rise, according to a law firm.
Some providers of botox, dermal fillers and hair transplants have been operating on the misunderstanding that such procedures are VAT-exempt under a provision for medical care, law firm Pinsent Masons said.
While cosmetic procedures are subject to VAT at the standard rate, medical treatments are not, with hair transplant, anti-ageing and contact lens companies all losing their claim for tax exemptions on a medical basis, according to HMRC.
Bryn Reynolds, Partner at Pinsent Masons, says that there are thought to be a large number of cosmetic businesses that have been operating on the mistaken basis that VAT is not chargeable on their services.
“Business owners may have taken advice in the past that their services are not VATable, but as the landscape and the services being offered have moved on, they need to revisit their conclusions to ensure that the advice remains sound,” Reynolds said.
There have been six cases taken by HMRC to the first-tier tax tribunal for claiming exemptions from VAT, according to Pinsent, but Reynolds says this is just the “tip of the iceberg”.
The cosmetics industry in the UK has boomed in the last few years, boosted by ever-more accessible treatments and the influence of social media and influencers.
“The use of weight-loss drugs and cosmetic surgery [is] becoming normalised… setting the stage for a future where wellness is accessible,” associate director at Mintel Daniel Takacs, said in a report last year.
But the success of cosmetic surgeries opens the sector up to more scrutiny at a time when HMRC is facing a wide tax gap.
With ambitious targets set by the Government to increase its number of tax investigators and tax investigations, Reynolds warns the tax authority may continue to come down hard.
The government body has also cracked down on tax-avoiding restaurants and takeaways, ‘naming and shaming’ 98 restaurant businesses in a single day, according to accountants Hacker Young.
The estimated tax gap for VAT increased to £9.5bn in the 2023-24 tax year, up 17 per cent on the estimated £8.1bn in unpaid VAT in the 2022-23 tax year.