Managing Your Cash Flow

Cosmetics companies need to ensure treatments comply with HMRC guidelines

2 min read

17 July 2018

Businesses in the beauty sector need to spruce up VAT skills or face some harsh treatment from the HMRC.

That’s the warts and all warning from Renfrew, Scotland-based accountants and business advisors Campbell Dallas.

Veronica Donnelly, VAT partner at the group, said the HMRC’s hidden economy team is increasingly targeting aesthetics businesses to ensure correct taxes are being paid, particularly VAT.

She said that cosmetic businesses that have provided treatments on which VAT is due, but not charged the VAT, will be at most risk of investigation, possibly resulting in fines and penalties.

The main risk to a business is the attempted backdating of VAT registration, which can in some cases go back to the business’s first trading year.

Donnelly added that businesses need to ensure their treatments comply with guidelines that VAT can be exempt when a treatment is undertaken as part of a health care programme.

“The first test is that the practitioner must be on a statutory register and working within their area of expertise as a surgeon, doctor, dentist or nurse,” she explained.

“The second test is more open to interpretation, as it focuses on patient health, and whether the treatment provided is of medical care.

“This is the area that can cause most difficulty, with some businesses applying the wrong test in relation to VAT, potentially making incorrect decisions that leave them exposed to enquiries from HMRC, and the risk of falling foul of VAT laws.”

Any treatment that does not pass the tests must be charged at the standard prevailing VAT rate, currently 20%.

Treatments provided and decisions on VAT exemption must also be accurately and properly recorded.

“Public finances are under considerable strain, and HMRC is looking to dramatically increase tax revenues,” Donnelly said.

“The hidden economy team is a specialist group that targets sectors where there are likely to be good recovery rates, and the aesthetics sector is on their radar.”