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United Kingdom VAT & Duties Tribunals Decisions
You are here: BAILII >> Databases >> United Kingdom VAT & Duties Tribunals Decisions >> Resta v Customs and Excise [2004] UKVAT V18641 (27 May 2004)
URL: http://www.bailii.org/uk/cases/UKVAT/2004/V18641.html
Cite as: [2004] UKVAT V18641
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18641
Output tax on taxable supplies – partnership trading from licensed premises – services of exotic dancers available – payments for dancing shared by individual dancers and partnership – whether dance services provided by partnership or by individual dancer to customer – whether licenses to occupy land granted by partnership to individual dancers – why not so qualifying.
EDINBURGH TRIBUNAL CENTRE
MR F DI RESTA AND MISS D DI RESTA Appellants
- and -
Tribunal: (Chairman): Mr Kenneth Mure, QC
(Members): Mr Ian M P Condie, CA
Mr W Ruthven Gemmell, WS
for the Appellants Mr David Rutherford, BA, CA
for the Respondents Mrs Joanna Clark, Shepherd & Wedderburn, WS
© CROWN COPYRIGHT 2004.
Introduction
In this appeal the Appellants were represented by Mr David Rutherford, BA, CA. The Respondents were represented by Mrs Joanna Clark, Solicitor, of Messrs Shepherd & Wedderburn, WS. We heard evidence from Miss Di Resta, one of the partners of the Appellants. The Respondents called as witnesses two officers of HM Customs & Excise, Miss Fiona Halcro and Miss Tracy Gibson.
The Appellants, who are father and daughter, are in partnership trading as "Bottoms Up" from 93 Lothian Road, Edinburgh. They are and were at all material times registered for VAT. These premises have an entertainment license. Miss Di Resta is licensee.
Income is derived principally from 3 sources, viz entry charges to the premises, the provision of alcoholic drink, and a share of the charges made for exotic dance performances there.
The issue for our determination is whether the dance services provided represent a taxable supply by the Appellants who thus are liable to output tax on the entire consideration paid by the customer. Failing that, there is a secondary issue as to whether the 30% share of consideration retained by the partnership is liable to output tax or is exempt as being in respect of a licence to occupy land.
In the course of the Hearing Parties indicated that they had reached agreement on the admission of many factual aspects. They undertook to produce a Joint Minute of Admissions and its terms are reproduced infra. We have made certain additional findings as to matters of fact.
The Legislation
Section 25 of the VAT Act 1994 provides –
"(1) a taxable person shall –
(a) in respect of supplies made by him … account for and pay VAT by reference to such periods … at such time and in such manner as may be determined …"
Section 31 of the Act provides –
"(1) a supply of goods or services is an exempt supply if it is of a description for the time being specified in Schedule 9 …"
Schedule 9 Part II of the Act includes –
"The grant of any interest in or right over land or of any licence to occupy land, or, in relation to land in Scotland, any personal right to call for or be granted any such interest or right …"
Facts
The Joint Minute of Admissions for the Parties narrates –
"The Appellants and the Respondents confirm that the following matters are agreed:
1. The disputed decision of the Commissioners is an assessment of Value Added Tax ("VAT") in the sum of £216,550 plus interest pursuant to section 73 of the Value Added Tax Act 1994 ("the Act") which was notified to the Appellants by a Notice of Assessment issued on 21 August 2003.
2. At all material times the Appellants operated a licensed bar and lap dancing club from premises at 93 Lothian Road, Edinburgh, EH3 9AW.
3. The Appellants were registered for the purposes of VAT as a partnership under registration number 716 9174 17 with effect from 18 June 1998.
4. In February 2003 the Appellants were contacted by telephone by the Commissioners to investigate why it appeared that the Appellants were not declaring output tax on all sales. Contact was made with Miss Di Resta of the Appellants who stated that the Appellants were not declaring output tax on all sales as the Appellants charged rent for the use of a pole and private dancing areas by lap dancers in the club, therefore the income received was exempt from VAT.
5. Following this telephone conversation a visit was arranged to the Appellants' premises by Officers of Customs & Excise. This took place on 25 February 2003.
6. The Appellants usually charge door admission of £5 per head to all persons entering the premises. On occasion, this is waived at the Appellants' discretion.
7. The main trading area is a bar and an elevated stage area with one pole situated in the middle. The stage area is open to view by all customers and is where girls perform during opening hours.
8. The girls are not paid for their performances on the public stage.
9. To the rear of the public stage is a smaller area that could be closed off for small parties. To the side of the main bar area is another area open to view with couches and three poseur tables. This area could also be closed off. To the side of the bar there are also two smaller booths used for individual private dances.
10. Private dances are charged at a fixed rate of £10 per dance. On payment of £10 a customer receives a ticket from the bar staff which is redeemed against a three minute performance by giving the ticket to the dancer. At the end of the night the tickets are handed in by the dancers to the bar and cross-checked to the cash in the till. The dancers received 70% of the total earned by way of cash, the balance is retained by the bar.
11. The dancers have no written contract with the Appellants and the Appellants do not pay employment tax on their behalf. The bar is open at set times and the girls may perform throughout these hours. There are no specific times for performances.
12. The dancers do not have a single booth designated for them. The dancers do not have any exclusive rights over any booth or area of premises.
13. There is no guarantee that a dancer, if she attends for work, will be given a specific area in which to work or that her services will be required at all. If a dancer does not perform private dances she receives no payment of any kind nor is she charged a fee for being on the premises.
14. The Commissioners carried out an examination of the Appellants' records. It was noted that the Appellants had not accounted for VAT on any of the income received from the lap dancing activities.
15. By reason of the above visit and the examination of the Appellants' records the Commissioners considered that the Appellants had made Returns that were incomplete or incorrect in that output tax was under-declared. Consequently the Commissioners made the disputed assessment of VAT on 21 August 2003 in the sum of £216,550 covering periods 09/00 to 06/03. The Appellants were notified of the Commissioners' decision prior to the Notice of Assessment by way of a letter dated 13 August 2003.
16. The letters from Archie McCue to the Appellants' representatives produced at tabs 14 and 16 of the Commissioners' Bundle of Documents were received by the Appellants' representatives.
17. Both the appealed assessment and the schedule appended to the letter from Fiona Halcro to the Appellants dated 13 August 2003 contain errors. The parties are agreed that the correct figures are given in appendix 1 of this minute."
We noted also from Miss Di Resta's evidence that –
(i) the music system at the premises was provided by the Appellants with a selection of CD's available for the dancers' use. Alternatively the dancers could provide their own CD's;
(ii) the advertising, flyers, and other promotional items produced by the Appellants referred primarily to the provision of exotic dance performances (see tabs 20-23);
(iii) the website prepared by the Appellants is presented in similar terms;
(iv) security at the premises (which, it was stressed by Miss Di Resta, was very important to the dancers) was provided by the Appellants by means of hired staff. The dancers could call on Miss Di Resta, the bar staff, and the security personnel when required;
(v) the dress code for dancers on the premises and their behaviour to customers was regulated by the Appellants;
(vi) female customers were present only exceptionally;
(vii) a separate till was used for payments for dance tickets. This was controlled by the Appellants. Any payments by credit card were in favour of the Appellants and not the individual dancers;
(viii) on quiet evenings there would usually be 4-8 dancers present, while on Thursdays, Fridays and Saturdays there would tend to be 8-20 dancers present.
None of these matters appeared to be controversial and we accept them as further evidence of fact in relation to the manner and circumstances in which the Appellants' business was conducted.
We noted also that in the trading year to 5 April 2003 the sums received (exclusive of VAT) from the principal sources of income were as follows:-
(i) door entry charges - £82,000;
(ii) sales of drink - £244,000;
(iii) 30% retention of dance performance tickets - £135,000.
Accordingly the total value of dance performance tickets sold amounted to £450,000.
Submissions for Respondents
Mrs Clark submitted that there were 2 potential questions for determination. Firstly, who supplied the dance services to the customer? She argued that the supply was by the Appellants and that whether or not the dancers were employees of the Appellants or self-employed. Secondly, if it were the case that the dancers made the taxable supply directly to the customer, how should the 30% share retained by the Appellants from the ticket charges be treated? In particular could it be an exempt supply in respect of a licence to occupy land?
Mrs Clark founded on firstly the level of "control" maintained by the Appellants in respect of the dance services. This extended to the method of payment, with the bar holding receipts in a separate till and taking all credit card payments in favour of the Appellants rather than the individual dancers. Also, the price for a dance ticket was determined by the Appellants and was not negotiable between customer and dancer. The dancers performing were selected by the Appellants and in the event of any disputes between dancers, the Appellants would intervene and resolve the matter. The licence was in name of Miss Di Resta and insurances, compliance with public regulations and security were all undertaken by the Appellants, not by the dancers collectively or individually. The code of conduct and in particular the behaviour of the dancers was laid down by the Appellants.
Secondly, Mrs Clark stressed that in all the promotional material the profile of the business and the Appellants' trading name was emphasised. This did not focus on the dancers as individuals. The emphasis was on the form of entertainment provided by the club, that of exotic dancing. As a consequence, Mrs Clark argued, from the customer's perspective he was dealing with "Bottoms Up" rather than the individual dancer. All advertising was in the business name. He bought dance performance tickets at the bar, not from the individual dancer. Any customer "groups" would direct their enquiries to the business itself.
Finally, if it was determined that the dancers supplied the services, Mrs Clark argued that the 30% share of ticket monies retained by the Appellants was not in respect of a licence to occupy land. There was no written contract and no right to occupy any particular area. The dancers had access to all parts of the premises simultaneously. That access, however, was restricted to business hours, and even then they could be turned away or, indeed, be permanently excluded. A dancer made no financial contribution if she was not asked to perform a routine.
Mrs Clark referred us to the following authorities. She noted in C & E Commissioners v MacHenrys (Hairdressers) Ltd [1993] STC 170 at p177 f-g that a taxpayer could not avoid VAT liability in every case where its workforce was self employed. (In that case Potts J upheld the Tribunal's finding that self-employed hairdressers rather than the salon at which they worked had supplied services to the customer). She then referred us to the cases of Stephen Paul Rudd t/a Duo's Spa and Sauna (LON/99/1176) and Niven (EDN/87/62) in each of which it was considered that massage services were made to the customers by the businesses for purposes of VAT liability. In Rudd at para 38 various criteria in support of this finding are set out. In the concluding paragraph of Niven it was emphasised that "… the customer had no reason to suppose that he was being provided with services separately by the Appellant and by the masseuse who attended to his requirements". Mrs Clark distinguished the decision in Robert and Julie Polok (LON/00/758), a case involving an "escort agency", where the services were considered to be "… of a highly personal and individual nature, such that contracts for personal services were made by each escort with each customer" (para 94). She noted the decision of the Division in Robertson and another (t/a Buzz Leisure) v City of Edinburgh District Licensing Board and another (dated 28 October 1993) in which the high degree of control required of a licensee in respect of his premises was emphasised.
Given the high degree of control in the circumstances of the present case, Mrs Clark argued that the Appellants were the supplier of the dance services for VAT purposes.
Finally in relation to licences to occupy land she referred us to the decision in "Holmwood" House School Developments (LON/02/88) para 30, where the criteria prescribed by the European Court of Justice are noted. These, in particular the right to occupy a particular piece of land, with the right to exclude others, and for an agreed duration, were not met in the circumstances of the present case.
Submissions for Appellants
Mr Rutherford invited us to allow the Appeal. The dancers, he submitted, were self-employed and essentially they contracted with the customers for their services. The particular arrangement was made between customer and dancer outwith the hearing of the Appellants and their staff. While he acknowledged that the Appellants retained extensive control, this should be discounted in as much as it was dictated by licensing and other statutory requirements. The method of payment resulted in the dancers' monies being held in trust, with the bar acting as cashier. This system enabled quantification and gave security. Mr Rutherford argued that the sharing of monies was jointly conducted. Whatever reference the advertising and promotional material made to the dancers, it also promoted the sale of drink in the premises. It was not appropriate to mention individual dancers in the Appellants' advertising since the attendance of individual dancers could not be guaranteed. The circumstances showed that each party – the Appellants and the individual dancers – had control, and in relation to the dancing performance control rested with the dancer.
Further, Mr Rutherford continued, the 30% retained by the Appellants was consideration in respect of a licence to occupy land and accordingly exempt. He referred us to the "Business Brief" of 7 September 1999 issued by HM Customs & Excise (tab 6 of the Bundle) and to the Tribunal decision in Tameside Metropolitan BC v C&E (1979) VATTR 93. However, we note in that decision (p113) that the licensor had "exclusive occupation … during the measurable period on each day for which he was in occupation … that such interest was not de minimis …".
Decision
The primary issue for determination is whether the paid performances by the dancers were a taxable supply made by the Appellants. We consider this to be substantially a question of fact in relation to the particular circumstances of this case.
We viewed as critical to our decision the nature and extent of the control, supervision and organisation exercised by the Appellants, and in particular by Miss Di Resta over these activities. The promotion and advertising of the business bears to relate to exotic dance performances. Prospective customers would be likely to view the business accordingly. There is no special reference to the individual dancer. The consideration paid by customers and the special terms offered to groups were all regulated by the Appellants. The issuing of tickets to be redeemed by the dancers was controlled by the bar management. The premises, facilities, stage props, and the music systems were all provided by the Appellants. The selection of dancers was made by the Appellants and that on a daily basis. Their dress code and behaviour viz á viz customers were dictated by the Appellants and enforced by them. In the event of any disagreements between dancers as to, for example, the use of props or facilities the Appellants would determine the matter. All advertising and promotion was undertaken by the Appellants and that expressly in their business name. Also, the value of receipts from sources other than drink sales were significant in our view in showing the nature of the partnership business.
In the course of the Hearing reference was made to the distinction between employment and self-employed status. If the dancers were employees, then the Appellants as employers, were suppliers of their services. However, even if the dancers were self-employed, the Appellants for VAT purposes could still be the supplier. See MacHenry's (Hairdressers) Ltd, noted supra. Accordingly we do not think it necessary or appropriate that we should form a view on this distinction in the present case. However, given the factors of control, supervision and organisation noted, it is difficult to view the dancers as being truly self-employed.
We accept that for reasons of licensing and other statutory requirements certain aspects of this organisational structure were desirable and possibly even necessary in some respects. However, for whatever reason that was the regime which did in fact operate, and it seemed clear to us that the Appellants wished in any event to maintain a close control and supervision of all activities conducted at their premises.
For these reasons we consider that the Appellants are the suppliers of the dancers' performances, and not the dancers themselves. In reaching this conclusion we found the reasoning in the decisions in Stephen Paul Rudd and in Niven helpful. Accordingly the entire consideration paid by the customer is therefore subject to output tax for which the Appellants are liable.
Notwithstanding our decision on the principal issue we think it appropriate to comment on the secondary matter, viz esto the supplies provided by the Appellants extended to only the retained 30% share of dance tickets sold, this was exempt as being in respect of a licence to occupy land in terms of Schedule 9, Group I of the Act. The "arrangements" made with the dancers were casual in the extreme. It was open to renegotiation nightly. In particular no rights over an exclusive area were granted to any of the dancers. All dance areas and facilities were shared. We do not consider in the circumstances of this case that an individual dancer obtained a licence to occupy land. The circumstances here fall far short of those set out in the decision in "Holmwood" House School Developments, supra.
For these reasons, therefore, we refuse this Appeal. It was agreed that in that event the Schedule annexed to the Respondents' letter of 13 August 2003 (production no 15) had to be revised and we note that this aspect has now been settled in terms of para 17 of the Joint Minute of Admissions.
Expenses
Neither Party sought expenses and accordingly we make no award.
Finally, we wish to thank Mr Rutherford and Mrs Clark for their helpful and detailed presentation of the arguments and evidence in this Appeal.
EDN/03/88