Are cosmetic procedures exempt from VAT?

In the UK, the supply of goods and services is subject to Value Added Tax (“VAT”), usually at 20%. In the private healthcare sector, patients (or their private medical insurers) pay for their care, but VAT is not added where the type of treatment is exempt. HMRC’s guidance states that the VAT exemption is only for when the service has the principal purpose of diagnosis or treatment of disease and health disorders. A treatment is not necessarily exempt from VAT even if carried out by a medical professional in a hospital.

There is clearly plenty of scope for misunderstandings over whether a particular treatment is purely cosmetic, or a ‘medical’ treatment under HMRC’s guidance, creating difficulty for healthcare and aesthetic providers.

What does case law say?

In the 2019 Skin Rich Ltd decision, the Tribunal considered whether VAT should have been added to the cost of Botox treatments. Evidence was heard that Botox can be used to treat medical conditions (such as excessive sweating), but no evidence was submitted to confirm whether any of Skin Rich’s patients were actually receiving Botox to treat a medical condition. Without such evidence, the Tribunal had to conclude that the treatments were primarily for cosmetic reasons, and not exempt from VAT. Therefore, Skin Rich had been wrongly failing to add VAT to the cost of treatment paid by its patients. As a result, it is likely Skin Rich had to account for VAT on the basis that the charges paid by its customers were VAT-inclusive amounts. Roughly four years of VAT returns were adjusted. Additionally, late payment interest would have been due, and penalties may have also been imposed.

In 2023, the Illuminate Skin Clinics Ltd matter concerned VAT dating back to at least 2016. The clinic seemed to have acknowledged that some of its services would not have been exempt from VAT, but it asserted most were exempt, such that the value of its taxable supplies was so low that it never exceeded the threshold for VAT registration. HMRC successfully argued that none of the services provided were exempt supplies of medical care. The shortcomings in the clinic’s evidence and record keeping, and its arguments about why the treatments provided constituted medical care, were subject to detailed criticism in the Tribunal decision. The clinic was run by a GMC-registered doctor, but the Tribunal did not suggest that there was fraud or other wrongdoing on the part of that doctor. Nevertheless, the clinic was liable to pay the VAT.

Later in 2023, the EPEM decision was published concerning VAT assessments going back to 2007. The dispute between HMRC and the clinic seems to have begun in 2009, with Tribunal proceedings starting in around 2013. The clinic claimed that the treatments were undertaken or supervised by medical practitioners. However, no evidence to support that assertion was provided to the Tribunal. Without evidence to show that the treatments were to treat disease or health disorders, the clinic could not succeed in its argument that it was making exempt supplies. It was liable to pay the VAT.

In 2024, the Aesthetic-Doctor.com Ltd decision highlighted that other investigations can trigger an examination of VAT questions. In this case, a Corporation Tax compliance check in 2018 triggered HMRC to open a VAT enquiry which concluded that the business was making taxable supplies and so should have been registered for VAT. HMRC opened a ‘Code of Practice 9’ fraud investigation, which could have led to a criminal prosecution (although there seem to have been other reasons in addition to the VAT position for that draconian approach). HMRC decided that the business should have been registered for VAT since 2010, used its powers to compulsorily register the business for VAT backdated to then, and assessed VAT due amounting to over £1.6 million.

In the 2025 Farjo Hair Institute case, the tax Tribunal rejected the arguments of the clinic and decided that procedures to treat hair loss are purely cosmetic, so that VAT should be added to the cost. This was partly because the procedures were typically sought for aesthetic reasons, and partly because hair transplant procedures offered by the clinic were rarely a permanent solution, and could not be described as a “cure”. However, the tax Tribunal cited case law from the Court of Justice of the European Union to confirm that the treatment can be counted as medical on psychological grounds, but a report from a psychologist would be needed in each case for the VAT exemption to apply. The decision leaves the Farjo Hair Institute facing a potential VAT liability of around £2.5 million plus interest.

When should healthcare and aesthetic providers take legal advice?

The VAT treatment of cosmetic procedures is a hot topic for HMRC, and with public finances under considerable strain, HMRC will be motivated to identify providers, regardless of size, who have been wrongly failing to charge their patients VAT.

Providers who consistently charge VAT for cosmetic treatments are unlikely to be investigated by HMRC. Those claiming VAT exemption for medical reasons should maintain thorough documentation, such as a psychologist’s report or medical diagnosis, to support their case, though they may still face an HMRC enquiry.

However, there will be many healthcare or aesthetic providers that have not been adding VAT to the cost of procedures that are arguably for aesthetic or cosmetic purposes. The treatments could range from the minimally-invasive (Botox, fillers) to major surgery (breast augmentation or facelifts). These providers should seek legal advice as soon as practicable to help them to understand whether they are at risk of having the VAT-exempt status of their supplies disputed by HMRC, and what can be done. They should review:

• their contractual arrangements;
• their terms and conditions with patients;
• any clauses relating to who pays an unexpected tax liability if an individual practitioner has a practising privileges agreement with a private hospital or clinic.

Input may also be needed from healthcare lawyers on whether their medical record-keeping is adequate, and how to maintain records in such a way that evidence can be provided to HMRC without breaching patient confidentiality.

Detailed evidence and even expert evidence may be needed to satisfy a tax Tribunal both that a procedure is capable in principle of being a medical (as opposed to purely cosmetic) treatment, and that the primary purpose for each individual patient was to treat disease or a health problem.

If supplies have wrongly been treated as VAT-exempt, then steps can be taken to make a voluntary disclosure to HMRC to correct the VAT position. Taking such proactive steps usually avoids penalties being imposed and allows a much more straightforward dialogue with HMRC to resolve the matter. In contrast, if HMRC uncovers the situation through its own investigations, it is much more likely to impose significant penalties (which can be as much as 100% of the VAT in question) and take a more hostile approach, potentially characterising it as a fraud investigation.

What if HMRC has already opened an enquiry or assessed that VAT is owed?

A healthcare or aesthetic provider who is already under investigation by HMRC needs specialist legal advice and representation right away, again from lawyers with both tax and healthcare law expertise.

Input from healthcare regulatory lawyers may be needed to protect the individual registrations of any regulated healthcare professionals who are involved in such a dispute with HMRC. If HMRC alleges that there has been tax fraud or dishonesty on the part of the healthcare professional, then their regulator (such as the GMC or NMC, or the CQC for clinics) may get involved to investigate the position. There is a better chance of avoiding a regulatory investigation at all, or of a good outcome if one is opened, if a lawyer can advise and collaborate on strategy with the tax lawyer at an early stage.

The provider should also check their medical indemnity arrangements carefully, and speak to their broker or indemnifier right away. Providers may have standalone legal expenses insurance, and some medical indemnity arrangements include commercial legal expenses cover for the cost of advice and representation in tax disputes. Given that tax disputes can be lengthy and expensive, it is important to check right away whether there is any indemnity available to help with those costs, even though insurance would not pay any tax liability, interest or penalties found to be due.

Many providers may have been inadvertently storing up significant tax liabilities over many years, either by misunderstanding the VAT rules or not maintaining the necessary records to prove to HMRC that treatments they provided were VAT-exempt. It is practically impossible in most cases to ask patients to pay VAT for a past procedure, so if the provider loses a dispute with HMRC, the liability falls on them. The amounts involved can be eye-watering, and certainly enough to put most individuals or clinics into insolvency.

Prevention is better than cure, and any provider setting up or running a practice that provides arguably cosmetic procedures should seek advice from lawyers with the necessary tax and healthcare expertise. Even if a provider thinks they may already have been wrongly failing to add VAT to treatments for some time, the sooner that they seek expert advice, the more they can mitigate their potential exposure and protect their business.

If you have questions or concerns about the issues raised in this article, please contact tax lawyer Matheu Smith or healthcare regulatory lawyers Joanne Staphnill and Tracy Sell-Peters.