The VAT challenge where the issue is and how to deal with it Glyn woodhouse – BDO Vat partner

1. The VAT challengewhere the issue is and how to deal with itGlyn woodhouse – BDO Vat partner

2. Glyn woodhouse • “There is a fundamental issue with VAT in the aesthetic medical profession, in that only therapeutic interventions can be exempt. This means that a differentiation needs to be made between what is and what isn’t therapeutic. Such decisions are inherently problematic and prey to prejudice.” • Glyn is a VAT Partner with BDO and has been taking the lead advising on VAT in the aesthetic medical profession for over ten years. As the UK’s leading advisor on this issue he has developed a detailed understanding of the sector and the treatments provided. He has direct experience of how HMRC view these treatments across the UK and also how the legal profession views the application of law on this issue. • Glyn has been the lead advisor a large number of challenges from HMRC on this issue and has reached settlements with HMRC on some of the largest brands in the sector. He also led on the BCAM funded challenge to HMRC and was ultimately successful in that case. • He is highly experienced in dispute resolution and is adept at helping business introduce process that ensure that the VAT position can be adequately demonstrated to HMRC. • GLYN WOODHOUSE • Indirect Tax Partner • T: +44 (0)118 925 4446 • M: +44 (0)797 619 8787 • E:glyn.woodhouse@bdo.co.uk • Relevant Experience

3. The VAT challenge • Where are we now? • What is the issue • HMRC have been challenging the VAT exemption widely applied to Aesthetic medicine • The Courts suggest that only therapeutic treatments should be exempt. • What happened to the leading case? • Successful in that HMRC dropped the case • No public court decision • HMRC not bound by its results • What are HMRC doing now? • HMRC are still visiting clients and looking into the VAT position • HMRC are attacking businesses • Really old fashioned attacks saying that non-referred patients are not medical • If not asking for more and more evidence to prove therapeutic purpose

4. The VAT Challenge • Legal position explained • EU Legislation • Directive 2006/112/EC, Article 132(1)(b) – Hospital and medical care and closely related activities undertaken by bodies governed by public law or, under social conditions comparable to those applicable to bodies governed by public law, by hospitals, centres for medical treatment or diagnosis and other duly recognised establishments of a similar nature. • Directive 2006/112/EC, Article 132(1)(c) – The provision of medical care in the exercise of the medical and paramedical professions as defined by the member state concerned.

5. The VAT Challenge • Legal position explained • UK Legislation • VATA 1994, Schedule 9, Group 7, Item 1 - The supply of services [consisting in the provision of medical care] by a person registered or enrolled in any of the following — • (a)     the register of medical practitioners or the register of medical practitioners with limited registration; • (b)     either of the registers of ophthalmic opticians or the register of dispensing opticians kept under the Opticians Act 1989 or either of the lists kept under section 9 of that Act of bodies corporate carrying on business as ophthalmic opticians or as dispensing opticians; • [(c)     the register kept under the Health Professions Order 2001;] • [(ca)     the register of osteopaths maintained in accordance with the provisions of the Osteopaths Act 1993;] • [(cb)     the register of chiropractors maintained in accordance with the provisions of the Chiropractors Act 1994;] • [(d)     the register of qualified nurses and midwives maintained under article 5 of the Nursing and Midwifery Order 2001 VATA 1994, Schedule 9, Group 7, Note 2 – Paragraphs (a) to (d) of item 1 and paragraphs (a) and (b) of item 2 include supplies of services made by a person who is not registered or enrolled in any of the registers or rolls specified in those paragraphs where the services are wholly performed or directly supervised by a person who is so registered or enrolled. • VATA 1994, Schedule 9, Group 7, item 4 –The provision of care or medical or surgical treatment and, in connection with it, the supply of any goods, in any hospital [or state regulated institution].

6. The VAT challenge • Leading Case Law • D’Ambrumenil (C-307/01) • This case confirmed that in order to benefit from the VAT exemption for health and welfare services, a supply must be for the purpose of “protecting, including maintaining or restoring, human health.” d’Ambrumenil (at paragraph 58) also confirmed that the objective of the legislation was to reduce the cost of health care. • Ultralase Medical Aesthetics Ltd (TC 00142) • This is a case where the evidence to suggest that the treatments were medical came from HMRC rather than the taxpayer. Ultimately, the case was decided in the taxpayers favour principally on European law definitions on which HMRC should not be able to rely. Furthermore, any argument as to the purposive intentions of someone providing services is always going to be driven by the credibility of the individual who has them. Put simply, it is difficult for HMRC to say that a person intended to address people’s health when they are saying that they did not.  • PFC Clinics AB (C-91/12) • PFC Clinic was a case referred by Swedish Courts, and dealt specifically with the liability of supplies of cosmetic surgery and is now the leading case on this area. • A medical or therapeutic purpose was required for the exemption and that meant restoration, maintenance or protection of health (including prophylactic and psychological treatments). • Wholly cosmetic services are not within the exemption, but cases that had a therapeutic purpose should be exempt. • The decision went on to say that determination of this purpose should be done by a medical professional, and that the opinion of the person being treated is not necessarily determinative. • The key point arising from this decision in our view is that each case needs to be considered on its own merits and that it is the underlying purpose of the treatment that drives the VAT liability rather than either the type of treatment or the subjective view of the patient.

7. The VAT challenge • New Case • Skin Rich (TC 07310) • This brand new case appears at first sight to be a major win for HMRC, as they won on all counts. The case involved a practise that provided injectable treatments and laser treatment for nail fungus. The case held that injectable treatments were not for the primary purpose of protecting, restoring or maintaining health and did not qualify as medical care. • It should be noted however, that this case was very much found on its facts and the judge made it clear that different facts may lead to a different outcome. • Specifically we would note : • No evidence was produced to show any underlying medical condition that was being treated • The main medical person was a dentist and there was much discussion as to his ability to diagnose and treat health conditions. • The judge cast doubt on whether the psychological training for a dentist enabled him to treat mental disorder • The premises were not CQC registered and the fact that the local council had some oversight was not sufficient for it to be treated as a regulated premises that was a “hospital or similar”. • There were some helpful comments on item 4 - care or surgical or medical treatment. • Whilst Botox for self esteem issues would not be medical care for the purposes of item 1, it was inherently medical and would qualify as care for item 4 if it took place in a hospital or similar – Ultralase notwithstanding. • Is this right?

8. The VAT challenge • What is HMRC’s position? • In a word - unclear • Public notices says about Cosmetic services  • Each case will need to be considered on its individual merits. However, we will generally accept that cosmetic services are exempt where they’re undertaken as an element of a health care treatment programme. Where services are undertaken purely for cosmetic reasons, they will be standard-rated. For services undertaken by hospitals and state-regulated institutions, see Health institutions supplies (VAT Notice 701/31). • Class 3B and 4 lasers and IPL machines are now used in many medical and cosmetic procedures carried out on the premises of approved, licensed or registered institutions. But it should not be assumed that all treatments using this equipment are exempt from VAT. • Where the procedure using this equipment is supplied as part of a treatment programme drawn up by a registered health professional following the diagnosis of a medical condition, this treatment is exempt from VAT. But where it is carried out for a cosmetic reason rather than as an element of medical or surgical treatment, this service is taxable at the standard rate of VAT • During disputes HMRC have explained that they are looking for evidence that: • A medical diagnosis has been made by someone qualified to do so • Services designed to treat that diagnosis must have been supplied • HMRC have generally said that they do not accept the use of a ‘blanket exemption’ and do need to consider the purpose test on a case by case basis.

9. The VAT challenge • What should you do now • Consider whether the treatment has a therapeutic purpose • The treatment must be for the protection, including the maintenance and restoration of health. • This includes prophylactic medicine; and • Treatments carried out to help a mental condition – NB. definitions and proof can be difficult • Avoid using a blanket exemption – this is always challenged by HMRC – instead consider each case on its merits • 2. Evidence is everything • Create process and procedures that identify whether there is a therapeutic purpose or not • Use this process to identify any purely cosmetic cases and exclude them from the exemption • If VAT registered account for VAT • If not registered keep a note and monitor the VAT registration thresholds (currently £85k P.A.) • Have records that clearly show the decision process and where the exemption is to be claimed show: • A diagnosis of a relevant medical condition • A statement as to the therapeutic purpose, by a suitably qualified person • The clinical decision should be evidenced • Is this enough? • Impossible to say until HMRC make their view clear

10. The VAT challenge • What if I get a visit from HMRC ? • Meet the officer and discuss your practise, emphasising the nature of your business • Be pleasant and helpful – a working relationship with the officer is always worthwhile • Think about who should meet the officer and make sure that they are briefed on the issues • Medical director? • Practise manager? • Talk through your processes and procedures, how patients are examined and their concerns discussed • Explain about the record keeping and the decision process • Emphasise the patient pathway, the physical examination, the normality of the medical issues and the similarities to other areas of medicine. • Provide the officer with appropriate records • Financial records should be easy to follow and readily explained • Demonstrate the separation of medical and non medical • Be prepared to show HMRC examples of the appropriately anonymised patient notes showing the diagnosis and the clinical decision • Consider having a medically qualified person to explain the technical terms and the appropriate severity of the condition

11. The VAT challenge • What if I get a visit from HMRC? • After the visit HMRC will tell you what they are thinking • Listen and try and educate the officer on any areas of misunderstanding • If you become concerned you can always ask the officer to provide you with their questions in writing and to give you some time to find the answers • Try to deal proactively with any questions or areas of dispute • If the officer takes the decision against the business • They will write to you setting out their concerns and possible providing a ruling or assessment • If you agree with the assessment then pay it – consider whether any penalty is appropriate • If you disagree with the assessment or decision you have 30 days to ask for a reconsideration • This request should detail exactly why you think HMRC are wrong and suggest that the decision be reversed and the assessment cancelled • If you still don’t agree; then • Consider alternative dispute resolution (ADR) • Cheaper than a full appeal • Useful if the dispute is a negotiation over numbers or you feel facts have been ignored • HMRC can (and will if they believe that the issue is fundamental or has wide application) refuse ADR • Formal appeal to the VAT Tribunal – again within 30 days of the reconsideration

12. The VAT challenge • What if I get a visit from HMRC? • If you appeal to the VAT Tribunal • This is a formal legal process and the deadlines/legal niceties are not negotiable • You can represent yourself but consider getting proper advice • VAT advice can help make sure that your case is strong, you stay within the confines of the process • Representation by Counsel is generally recommended • Evidence is everything, the judge can not give weight to something that she hasn’t seen • The judge needs to be taken through the evidence and it should be presented in the most appealing way possible, this includes medical notes, qualifications, case law, legal references and papers that you will rely on • Prepare a proper bundle of evidence and share it with HMRC and the Tribunal • Consider independent expert witness to give weight to medical evidence • Usually you will get them to review and report on the cases that you intend to use as evidence • Generally costs are not awarded unless you opt in for costs at the start of the process!