Hair extensions are not zero-rated for VAT

Mark Glenn, co-founders Mark Sharp and Glenn Kinsey established the company in 2001 with the nature of trade described as ‘hair extensions and medical treatments for folicularly challenged’, which is how the company viewed its main trade as VAT exempt.

Additionally, a letter from a VAT expert submitted in evidence said: ‘For zero-rating to apply under the dispensing provisions referred to in my previous letter, two conditions have to be met: a medical practitioner has prescribed the treatment and payment is made under regulation 20 of the National Health Service (Pharmaceutical Services) Regulations 1992.

‘There is another possibility that zero-rating could be available using the legislation for aids to the handicapped. The definition of handicapped is a person who is chronically sick or disabled. The notes to the relevant legislation state that a medical appliance includes wigs.’

The hair extension specialists appealed against three VAT assessments worth £277,083 in total over six years from 2018.

HMRC opened its first compliance check into the appellant in 2020. There was contact via letters between Kinsey and HMRC officer John Edward Gibbard before the initial appeal from Mark Glenn was made in 2022.

The main question the First Tier Tribunal judges Kelvan Swinnerton and John Agboola had to answer was if, ‘the Kinsey System a taxable supply of a good or a taxable supply of a service’.

The Kinsey system is the method created by Sharp that creates and fits a wig to a client’s head. This entailed ‘installing and assembling the silk wig mask onto the client’s head’ and returning in six weeks to have it repositioned.

During the hearing, two examples were supplied by the appellant of the services it provided, one of which was demonstrating the Kinsey System, titled ‘Caroline’s Story’. The second story demonstrated the supply and service of hair extensions, which the appellant accepted is standard rated for VAT.

The tribunal also concluded that the Kinsey System was the supply of a service and not the supply of a good.

However, in a letter from Dr Sarah Riley, GP at Putney Mead Medical Centre at the time, she said: ‘“I am writing to endorse the treatments offered by Cosmedical Hair Design. It is now possible to help patients suffering from hair loss due to a number of causes, e.g. alopecia, Trichotillomania, genetic thinning, accidental damage, etc.

‘Lucinda and Mark Sharp have devised a technique known as a KC which uses the existing hair base to attach a gauze to which more hair can then be added to give the appearance of a full, natural-looking head of hair.

‘I have referred patients for treatment and will continue to do so because I have seen them return with improved confidence and self-esteem…. I believe it should be available to NHS patients as a treatment for the many causes of hair loss.’

HMRC does not believe that significant hair loss in women is not a disability though, as it does not impact the person’s ability to carry out everyday activities. The Tribunal agreed with this view.

However, the appellants went on to say the impact of someone receiving cancer treatment which results in hair loss would be classed as a disability linked to the initial illness.

However, tribunal judge Kelvan Swinnerton did not agree with this, saying: ‘Having found that significant hair loss or baldness in women is not, in itself, a disability, we find that there could be clients of the Appellant who make use of the Kinsey System who meet the definition of a disabled person such as Ms Perkins who was suffering from cancer which is recognised as a disability (and specifically stated as being a disability in the Equality Act 2010).

‘That said, in our view, the significant hair loss or baldness in itself would not be a chronic sickness or disability.’

The appeal was dismissed, resulting in the Kinsey System not qualifying for zero-rating for VAT.