Aesthetics might not be VAT exempt By Simon Vincent. July 5, 2017.
After a while in business you realise that things to do with VAT tend towards the vague and perverse. Vague until they get to the courts, that is; as we write, Irish revenue authorities want four years of VAT on services to dental associates from a principal we know, an alarming precedent. And as more dentists move into the lucrative area of facial aesthetics, very few, if any, are aware of the potential VAT bomb in store.
We spoke to Simon Vincent, senior accountant at Hive Business, a specialist firm that handles our clients’ finances, what to do about VAT on facial aesthetics.
Simon, what’s the problem here?
In dentistry, no one in the chain pays VAT when they’re giving healthcare treatments. As soon as a service is not for healthcare, it’s VAT-able.
Nobody’s yet charging VAT on facial aesthetics, so either they’re ignoring the problem or planning to show a healthcare reason behind everything they do, which you can detect on a lot of dental websites these days. The question is, will such efforts hold up in court, and can HMRC charge backdated VAT?
On what grounds could HMRC charge backdated VAT?
HMRC would dearly like to know the answer to that question, and it will no doubt be carrying out risk assessments of its own to find out. HMRC’s VAT notice says: “Cosmetic dentistry services will need to be considered on a case by case basis and will be exempt only where they are supplied as an element of oral health treatment by a registered health professional, as part of a health care treatment programme.”
It adds that services are exempt when both of the following conditions are met:
The services are within the profession in which you are registered to practise.
The primary purpose of the services is the protection, maintenance or restoration of the health of the person concerned.
So, HMRC might question whether facial aesthetics are part of oral health, and whether facial aesthetics are within the profession in which you are registered to practice.
The second question mark is whether, say, lip fillers, really serve to protect, maintain or restore the health of your patient. Happily, a European Court of Justice ruling in 2012 said yes, they can do, particularly in a psychological way, even if the patient isn’t aware of this aspect of the treatment.
This ruling, on a case brought by Swedish revenue authorities against a clinic providing skin rejuvenation with Botox and Restylane injections, concluded that it boils down to the medical opinion of the practitioner and their record keeping.
So are dentists safe to keep ducking VAT?
The VAT threshold is £85k, so below that you don’t have to think about it. However, the practitioner and the practice are distinct entities in the eyes of HMRC, so while three of your associates might come in under £85k on facial aesthetics individually, total fees collected by the practice might exceed £85k, at which point you have to take a position.
If they want to charge VAT on facial aesthetics, is there an easy solution?
Yes. A common commercial option is to operate risky business via a limited company for the protection of limited liability they afford. I’d suggest creating a limited company to handle all your aesthetic work. Your associates could do this too if their fees on facial aesthetics exceed the £85k threshold.
Your position is then about weighing the administrative burden of operating an additional business against the risk of potential liabilities. How big a bill might you be hit with? It’s a question of scale: if your business is planning on serious growth in facial aesthetics then we would strongly advise you to talk to us so we can figure out where the risk will start to exceed the burden.
And with Brexit possibly detaching us from EU legislation, and the case history, you may want to ring-fence your facial aesthetics income sooner rather than later.
“As soon as a service is not for healthcare, it’s VAT-able”
Simon Vincent, senior accountant, Hive Business