Who does VAT apply to in the beauty industry?

Who does VAT apply to in the beauty industry?
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    As a business owner in the beauty industry, understanding Value Added Tax (VAT) and how it might affect the services you offer is crucial. VAT, the tax added to the products and services you provide, can be complicated due to the many rules and exceptions.

    Whether you run a small beauty salon or a thriving aesthetics business, knowing whether your business needs to charge VAT on its aesthetic treatments can make a substantial difference in how you operate and plan for the future.

    This blog clarifies who VAT applies to in the beauty industry and explores the nuances that differentiate cosmetic treatments from medical ones. At AudTax, we aim to provide you with the insights and knowledge you need to make the best decisions when running your business.

    We work hard to help you avoid potential pitfalls and unnerving HMRC inquiries. Keep reading to learn more, or contact us today for VAT support.

    Difference between cosmetic and medical treatments

    What is the difference between cosmetic and medical treatments?

    When working in the beauty industry, the distinction between cosmetic and medical treatments can be a bit of a grey area, especially when beauticians can offer treatments and minor surgical procedures that can also improve health.

    Cosmetic services that are not essential for health are usually subject to VAT, while most medical treatments are exempt. Understanding the difference between each type of treatment will help your business claim VAT correctly and avoid inquiries from HMRC.

    Here’s a brief breakdown:

    • Cosmetic treatments are various surgical and non-surgical treatments aimed solely at enhancing people’s appearances rather than addressing any underlying health issues. This can include breast surgery purely for enhancement or removal of a lesion for aesthetic purposes.
    • Medical treatments are surgical or non-surgical procedures performed to diagnose, treat or prevent illnesses or health conditions. This may include reconstructive surgery following an accident or removing varicose veins to treat leg pain.

    Why are medical treatments VAT-exempt?

    According to the World Health Organisation (WHO), physical and mental health should be considered a fundamental human right that local governments worldwide should enforce. By making medical care VAT-exempt, the UK government is making healthcare more accessible and affordable for patients who require it for their health and well-being.

    What beauty businesses need to register for VAT?

    Any business operating in the beauty industry that reaches the current VAT registration threshold must register for VAT. The current VAT threshold in the UK is £90,000 (2024). This figure may change, so it is always best to check with your local aesthetic accountants or the gov website for the latest figures.

    While a beauty business may offer health-improving services, it doesn’t necessarily mean that all of their services will qualify for VAT exemption.

    Businesses that fall into the following categories may be expected to register for VAT if they provide any non-essential cosmetic treatment or product:

    • Aesthetic clinics
    • Beauty salons
    • Hairdressers
    • Nail technicians
    • Self-employed massage therapists

    What happens if you don’t register for VAT?

    If you don’t register for VAT on time, you may receive inquiries from HMRC, which can result in heavy financial penalties. This can be a huge financial risk for your business, and it could damage your reputation with customers, suppliers, and investors.

    We understand it’s not always easy to know when to charge VAT on clinical treatments. Even HMRC can get it wrong sometimes.

    Real-life example:

    Failing to register for VAT when required can have serious consequences, as illustrated by the case of Gillian Graham in a recent article posted by The Times. Graham, a nurse who operates the Skin Science & Health clinic in London, recently faced an extortionate £213,000 VAT bill from HMRC.

    This is because, between 2007 and 2018, she didn’t charge VAT on certain cosmetic services provided, including Botox, glycolic acid peels and eye serums. Graham thought each of these services was a VAT-exempt medical treatment, but HMRC disagreed and insisted that these treatments were cosmetic and, therefore, subject to VAT.

    Although Graham won her appeal, the core issue of whether her cosmetic treatments qualified as VAT-exempt medical services is still up in the air.

    This case highlights the importance of accurately classifying your services and their VAT-inclusive price and registering for VAT when necessary. Following the right steps will help you avoid hefty fines and penalties – not to mention considerable stress.

    How do you prove that your treatments are exempt from VAT?

    Proving your medical treatments are VAT-exempt can be challenging, but understanding what counts as a medical exemption is a good start. VAT-exempt medical services need to be provided by a health professional with the aim of preserving, maintaining or restoring a patient’s health.

    To prove your treatments fit this category, you’ll need to show that they are medically necessary.

    This may include the following:

    • A diagnosis from a medical professional
    • Medical documentation clarifying the necessity of the treatment
    • Confirmation that the treatment is provided by a medical professional

    Businesses within the beauty industry that are not exempt from VAT

    While some treatments may qualify for a VAT exemption, many businesses in the beauty industry will still need to charge VAT following UK tax regulations.

    Cosmetic and aesthetics businesses

    Businesses that offer cosmetic and aesthetic treatments solely to enhance a client’s features will need to include VAT in their charges. These can consist of Botox to remove the appearance of wrinkles or laser hair removal to get rid of unwanted hair.

    Hairdressing

    Hairdresser businesses offering cut and blow drys, colouring, and styling services do not qualify for VAT exemption. These services are typically aimed at enhancing appearance rather than addressing health concerns.

    How can AudTax help?

    At AudTax, we have extensive experience in the beauty industry, supporting aesthetic clinics with numerous tax and accounting needs. We also have plenty of practice working with various health professionals, including dentistslocum doctors and nurses.

    Our comprehensive VAT services will ensure you are VAT registered at the right time and know exactly how much VAT to pay and when. We’ll calculate your input tax vs output, prepare and file VAT returns, advise you on any VAT schemes applicable to your business, and handle any investigations you may encounter.

    Our team members each have their own set of complementary skills and areas of expertise, providing valuable accounting solutions to businesses in all areas. But what sets us apart is our specialism in tax. With our in-depth understanding of UK tax laws and technical expertise, we can provide your cosmetic business with exceptional results.

    Just take a look at the recent accountancy work we did for an aesthetic clinic in Kent. We fixed numerous errors in their accounts and ensured their company was prepared to meet its financial targets. Here’s what our happy client had to say:

    Audtax is a lifesaver! They’re incredibly thorough and handle everything for me, taking a huge weight off my shoulders. Plus, whenever I have a question, they’re always easy to reach. Highly recommend!”

    – Rachael Roberts

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    Picture of Shahood Ahmed BSc, FMAAT, AFA MIPA

    Shahood Ahmed BSc, FMAAT, AFA MIPA

    Shahood is a fully qualified accountant, and holds UK memberships in numerous accounting bodies. Having worked in many accounting roles, he decided to set up his own practice to provide clients with the best accounting services, offering sound business advice.

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