Latest from the courts
In the Advanced Hair Technology Ltd First-Tier Tribunal (FTT) case the issue was whether hair transplants are exempt supplies of medical care, or were they for ‘cosmetic’ purposes and consequently standard rated?
Background
Advanced Hair Technology Ltd (AHT) was a medical practice trading as The Farjo Hair Institute which specialised in hair restoration surgery. It treated conditions related to hair loss, in particular androgenetic alopecia (AGA). Dr Farjo who carried out the work is qualified is a medical practitioner with the Royal College of Surgeons. The output tax which HMRC deemed due was circa £2,500,000.
The sole issue was what AHT provided covered by the definition ‘medical care’?
Legislation
The VAT Act 1994, Schedule 9, Group 7, item 1 covers services which are for the primary purpose of protecting, restoring, or maintaining health: “medical care”.
Contentions
AHT argued that it was treating patients for medical conditions, as opposed to providing aesthetic surgery and consequently, its supplies were exempt. The appellant explained that several patients believed that hair loss had affected their self-confidence and so the surgery improved their overall health (which includes a mental health element). Furthermore, the surgery helps to protect the skin from future photodamage, minor trauma and thermal insult.
HMRC contended that none of the patients had any recorded prior psychiatric conditions, eg; depression or anxiety, nor had any stated that they were looking to benefit from the surgery beyond it improving their appearance and confidence. Additionally, no recipients of the treatment said that they were seeking any of the above physical protections.
Therefore, the treatment was a standard rated cosmetic procedure.
Decision
The meaning of ‘medical care’ was considered by the Court of Appeal in its decision in Mercy Global [2023] EWCA Civ 1073.
The court agreed with HMRC that a “principal purpose” test must be applied in all cases.
The evidence before the FTT was that by the age of 70 at least 80% of caucasian men suffer from hair loss as a result of AGA, and this is part of the normal process of aging. AGA is not considered a medical condition but rather a symptom.
AHT’s contention that the procedures serve a therapeutic purpose related to psychological issues was dismissed due to a lack of evidence from qualified practitioners. This reinforced the FTT’s view that the treatments were primarily cosmetic, rather than for medical reasons because altering one’s physical appearance was for aesthetic purposes.
The relevant supplies were therefore outside the exemption.
The appeal was dismissed.
Commentary
The judgment provides some guidance on the interpretation of the definition of medical care for the purposes of the exemption and follows similar recent cases which we covered here:
Skin Science
Skin Rich
X
The concept of the “provision of medical care” does not include medical interventions carried out for a purpose other than that of diagnosing, treating and in so far as possible, curing diseases or health disorders and it is the purpose of the medical intervention rather than merely the qualifications of the person providing it that is key in determining the VAT liability.
There has been an ongoing debate as to what constitutes medical care. Over 20 years ago I was advising a large London clinic on this very point and much turned on whether patients’ mental health was improved by undergoing what many would regard as cosmetic procedures. We were somewhat handicapped in our arguments by the fact that many of the patients were lap dancers undergoing breast augmentation on the direction of the owner of a certain club…
It is worth remembering that not all services provided by a medically registered practitioner are exempt. The question of whether the medical care exemption is engaged in any given case will turn on the particular facts .
Interestingly, the judge here stated that the medical exemption may apply to some patients whose hair loss was a result of trauma caused by cancer treatment.
