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The firm that has used cricket legends Graham Gooch and the late Shane Warne to advertise its hair loss treatments claimed that they should be exempt from VAT because they amounted to medical care.
Medical treatments are currently exempt from VAT.
But HM Revenue & Customs () argued that the procedures were for “aesthetic” purposes and therefore liable for tax.
A tax tribunal ruled that, in the case of 10 men treated by Farjo Hair Institute in 2021, the hair transplants were “purely cosmetic” and therefore not exempt.
But it also ruled that some transplants were administered because of genuine medical need – including some following cancer treatment or the formal diagnosis of a psychologist.
The tribunal ruled that transplants should be considered on a case-by-case basis for VAT purposes.
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The hearing was told that pattern baldness, known as androgenetic alopecia (AGA), affects up to 96% of white men at some point in their life.
Farjo Hair Institute, which trades as Advanced Hair Technology, has treated several several high profile clients for hair loss, including Dragons’ Den star Duncan Bannatyne.
The “very intense” procedure involves taking hair follicles from the back of the head and moving them to the front of the scalp.
Prices without VAT at the London clinic begin at £3,000 and can go up to £15,000. On average, a course of treatment costs £7,000.
But, following the tribunal ruling, experts say it could cost between £600 and £3,000 more.
Institute director Dr Bessam Farjo claimed that his clinic was a medical rather than a commercial operation.
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Consultant dermatologist Dr Rowland Payne told the tribunal that case studies showed that the transplants “helped to restore the health of the patient” and most had their psychological well-being improved.
He said bald men have fewer sexual partners and obtained fewer interviews when applying for jobs than men with a full head of hair.
But tribunal Judges Nicholas Aleksander and Gill Hunter said the 10 patients’ procedures had not been medical and did not qualify for a VAT exemption.
The judges also noted that, as hair transplants are rarely permanent, they can’t be viewed as a medical “cure” for the purposes of the VAT exemption.
But the court ruled that some hair transplants may qualify for VAT exemption and should be considered on a case-by-case basis.
had registered the firm to pay VAT in 2019 and later ordered it to pay undeclared tax of £2.5 million, and a penalty of £374,734.
The fine was subsequently dropped and the case has now been referred back to to reconsider the VAT liability.