Hair Today, VAT Tomorrow? A closer look at the latest tax ruling on hair transplants

In a case that left many in the hair restoration industry scratching their heads, the First-Tier Tribunal (FTT) recently ruled that hair transplant treatments are not typically considered medical care and, therefore, don’t qualify for VAT exemption. However, the decision also made it clear that the exemption should be applied on a case-by-case basis, depending on the patient’s specific circumstances. This ruling raises interesting questions about how VAT exemptions are determined when it comes to cosmetic vs. medical procedures.

The Case of Advanced Hair Technology

The case in question involved Advanced Hair Technology Limited (AHT), a hair transplant service provider, who appealed a decision by HMRC. HMRC had ruled that the majority of AHT’s services were subject to standard VAT rates, not medical VAT exemptions.

AHT argued that its services should be exempt because they were aimed at treating androgenetic alopecia (AGA), commonly known as male pattern baldness. The company contended that the procedures always followed a medical diagnosis and were delivered by qualified doctors. Some treatment plans even involved surgery, they claimed.

However, HMRC took a different stance, arguing that the primary purpose of the hair transplants was cosmetic enhancement – essentially improving appearance – rather than treating a medical condition. In other words, HMRC believed these procedures were more about creating a “good hair day” than restoring health.

The Tribunal’s Verdict: It’s All About the “Need”

In the end, the tribunal took a hard look at the definition of “medical care” and how it applies to hair transplant treatments. Since there is no statutory definition of “medical care,” the tribunal turned to European Union case law to help guide its decision.

The tribunal accepted that AGA is a disease – one that can cause distress and hair loss for many sufferers. However, the tribunal concluded that hair transplant surgery wasn’t a necessary treatment for AGA, as there is no medical need for most patients to undergo such procedures to restore their health. They found that, for the sample cases provided, the procedure wasn’t being used to treat psychological or psychiatric conditions either, another potential justification for a VAT exemption and as a result, the tribunal ruled that hair transplant treatments were primarily cosmetic in nature and did not qualify for VAT exemption under the medical care rules.

In the end, the tribunal made it clear that VAT exemptions should be applied on a case-by-case basis. The test isn’t just whether a procedure is cosmetic or medical, but whether there is a “need” for the surgery to treat an illness. A hair transplant following trauma from cancer treatment could qualify, but a transplant for the sake of aesthetics, not so much.

To Sum Up: The Final Word on Hair and VAT

For now, hair transplant businesses will need to carefully evaluate their services, ensuring they understand whether their treatments fall on the “cosmetic” or “medical” side of the line. While the decision in the AHT case may not be the final strand in the matter, it is certainly a big step toward unravelling the complexities of VAT exemptions in the cosmetic and medical fields.