UK tax tribunal rules hair transplants not ‘medical care’ for VAT purposes

The First-tier Tribunal (FTT) ruling concerns an appeal by hair transplant service provider Advanced Hair Technology Limited (AHT) against a decision by His Majesty's Revenue and Customs (HMRC), which determined that most of AHT’s supplies were standard-rated for VAT and not exempt as medical care. However, it emphasised that the medical care VAT exemption has to be applied on a case-by-case basis to the patients of AHT.

Tax expert Steven Porter of Pinsent Masons said that this case is part of a growing body of cases before the FTT that highlight the ongoing debate over and the fine line between cosmetic treatments and medical care in the context of VAT exemptions under the UK’s tax regime. These cases have included treatments for skin conditions, acne, Botox and wigs following hair loss.

VAT expert Bryn Reynolds of Pinsent Masons added: “A number of these cases have focused on the meaning of medical care, but others have included discussions of who needs to deliver the care and the extent of restoration of health. Several of these cases are proceeding to the Upper Tribunal, so we expect to see a more definitive position start to develop”.

“In the meantime, businesses providing services that fall close to this dividing line should be reviewing their position, particularly where they have been adopting a position over a lengthy period because HMRC’s focus and attention is very much on this industry at present,” he said.

In the AHT case, the taxpayer argued that its supplies were exempt as treatment for the medical condition of androgenetic alopecia (AGA), commonly known as male pattern baldness, because they were aimed at restoring health. It claimed that the treatment always followed a diagnosis by a doctor and was always delivered by a qualified doctor. It added that some treatment plans were medical only and others involved surgery.

However, HMRC contended that the principal purpose of hair transplant procedures was cosmetic enhancement of appearance, instead of diagnosis and treatment of disease.

The tribunal, having considered that there is no statutory definition of “medical care”, turned to case law developed by the Court of Justice of the European Union (CJEU). It found that the jurisprudence of the CJEU, which had been applied in domestic law prior to the end of the transition period following the UK’s withdrawal from the EU, applied to the determination of this appeal.

The tribunal accepted that AGA is a disease, reluctantly adopting the definition of "disease" agreed by the experts as a disorder of structure or function. They also acknowledged that the treatments applied by AHT were treatments for the disease of AGA.

However, the tribunal found that hair transplant was not necessary to treat AGA and there was no need for most patients suffering from AGA to undergo hair transplantation in order to restore their health. It found that the treatment of AGA, in the ten sample cases identified, was also not therapeutic treatment for a psychological or psychiatric condition, which could also have founded the basis for exemption.

The tribunal, therefore, ruled that the principal purpose of the hair transplant treatment supplied by AHT, in the sample cases, was “purely cosmetic” and held that the supplies of hair transplant surgery made by AHT fell outside the scope of the medical exemption for VAT.

The FTT’s findings in this case also touched on the application of the principal purpose test in similar cases. The tribunal clarified that the test was not limited to circumstances where there is a non-therapeutic competing purpose, but the key question should be whether there is a “need” for the surgery to treat an illness.

The tribunal concluded that the medical care VAT exemption has to be applied on a case-by-case basis to the patients of AHT. As an example, it provided, a patient whose hair loss resulted from trauma due to radiotherapy would fall within the exemption, as the hair transplant treatment forms part of a continuum of their cancer care.