Advanced Hair Technology (AHT), a clinic in Harley Street, London, appealed against three decisions HMRC made for £2,498,232 in VAT and £374,734 in penalties.
AHT is run by Dr Farjo, a highly qualified hair restoration surgeon and a fellow of the International College of Surgeons. He appeared as a witness at the First Tier Tribunal (FTT).
In 2018, HMRC decided the majority of the services provided by AHT were standard rated for VAT, as they were cosmetic, not medical. HMRC registered AHT for VAT in 2019, but with effect from 2007 and sent a notice of assessment to AHT for failing to register for VAT 'at the right time'.
AHT appealed to the FTT as it believed its services were VAT exempt as they were medical care for the treatment of androgenetic alopecia (AGA).
Witnesses included Dr Payne for AHT, and Dr Walsh for HMRC.
AHT argued all the practitioners at the clinic were medically trained, registered with the GMC. AHT is also regulated by the Care Quality Commission (CQC).
The FTT judges were also shown 10 case studies on AHT patients which were used as evidence throughout the FTT hearing. Walsh said in her witness statement: 'AGA is extremely common in the population, affecting up to 96% of men to some extent by the end of life.
AGA is defined as a 'disease of the skin and subcutaneous tissue', which Dr Payne and Dr Walsh agreed supported the argument that it was a disease.
When patient notes were examined by Judge Aleksander, he noted: 'It was striking that in the case of many of the patient notes, no formal diagnosis of AGA was recorded.' Dr Farjo and Dr Payne both argued that there was no point in doing so as this was the obvious reason for the hair loss but the clinic has now changed its checklist to formally recognise the condition.
The experts also agreed that the surgery was 'not a complete cure for the disease'. But to be medically exempt for VAT, the treatment needs to be a permanent cure. It was argued for AHT that 'The transplanted follicles have a degree of permanency, and as such, they provide a “cure” to the atrophied follicles that they replace.'
The FTT disagreed, saying 'hair transplantation is not a cure for tax purposes'.
The Royal College of Surgeons describes cosmetic surgery as 'the choice to undergo an operation, or invasive medical procedure, to alter one's physical appearance for aesthetic rather than medical reasons'.
The FTT said: 'We find that in relation to the 10 case study patients, and the patients that were the subject of the four YouTube videos that we saw, the supplies of hair transplant surgery made by AHT fall outside the scope of the medical exemption'.
The tribunal ruled that HMRC and AHT should now agree which cases fell under the term 'medical care', and adjust the VAT claim accordingly.
AHT has said it intends to appeal the decision.
Peter Nichols
Tax Director BFN Accounts & Tax Limited