United Kingdom VAT & Duties Tribunals Decisions

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Cite as: [2007] UKVAT V20180

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Joppa Enterprises Ltd v Revenue & Customs [2007] UKVAT V20180 (30 May 2007)

20180

Output tax – supply of services for a consideration – supply at premises with entertainment licence – provision of facilities for the performance of sexual services by various women – money paid to Appellant at door for time spent in premises – additional money paid to woman for services after negotiation – money at door divided into a fixed sum retained by Appellant – remainder also retained but divided by woman as to one half for Appellant and one half for her – whether total money paid by customer was output tax of Appellant, to whomever paid – no – whether total money paid at door was consideration for services provided by Appellant – yes – whether women employees or agents of Appellant – no.

EDINBURGH TRIBUNAL CENTRE

JOPPA ENTERPRISES LTD Appellant

- and -

THE COMMISSIONERS FOR

HER MAJESTY'S REVENUE & CUSTOMS Respondents

Tribunal: (Chairman): T Gordon Coutts, QC

(Members) Mr K Pritchard, OBE., BL., WS

Ian M P Condie, CA

Sitting in Edinburgh on Monday 16, Tuesday 17 and Wednesday 18 April 2007

for the Appellant Mr David Logan, Advocate

for the Respondents Mr Roddy Thomson, Advocate

© CROWN COPYRIGHT 2007.

DECISION

By notice of assessment dated 5 September 2005 the Appellant was assessed as being due as underdeclared tax the sum of £315,866 for the period between September 2002 to June 2005. Interest was and is also claimed on that sum. In this appeal against that assessment parties were represented by Counsel. Evidence was led from Mr Ian Haig, Mr Norman Gregor and Lorraine Stewart by the Appellant and from Mrs Fiona Halcro or Bell, Mr Alan Kerr and Mrs Angela Kelly for the Respondent.

Leaving aside the issue of credibility the Tribunal could not regard the evidence of any witnesses other than Lorraine Stewart and Mr Kerr as fully reliable. Their findings are the result of their evaluation of what evidence they could rely upon from all sources.

The Issues

The Appellant suggested that there were 2 principal issues to be determined, both relating to the monies paid at the door and money received by the women. The Respondents suggested that the central questions for the Tribunal were "what is supplied", which it was suggested was a package of services "who supplies it", "to whom is it supplied" and "on behalf of whom is it supplied".

The Grounds of Appeal and Respondents Statement of Case

The Appellants grounds were:

"The basis of the assessment is that the Customs & Excise have sought to aggregate the earnings of the masseuses for additional services provided by them in the rooms provided by the Appellant. The Appellant already pays VAT on the fees earned by the Appellant for entry and on the charges received by the Appellant for the supply of the room and the supporting facilities. It is submitted that the girls are self employed contractors providing an independent service in terms of Article 4 of EC Directive 77/388. They are not in partnership with the Appellant nor is there a fixed division of profits. The additional services provided are paid for by the clients to the masseuses direct. The nature of the services may vary from client to client and are not the concern of the Appellants. The Appellants' business has been accepted to be a legal business by Lothian and Borders Police on that basis. The Tribunal should distinguish between the legal services provided by the Appellants and services which it would be illegal for the Appellants to provide".

In the Statement of Case for the Respondents contentions were set out as being:

(a) The Appellant is providing supplies of sauna services to Customers, acting as the Principal of the masseuses. The masseuses are employees of the Appellant.

(b) Such a contention is based on the high degree of control the Appellant exerts over the working conditions of the masseuses.

(c) Further, this contention is based on the exclusive control the Appellant has in relation to the operation and maintenance of the premises, including opening times, security, rent, insurance, amenities such as telephone/gas/electricity, advertising and general maintenance of the premises.

(d) Any "tips" over and above the door entry fee (those being amounts paid directly to the masseuse from the customer) are payments to the masseuses arising from their employment and are not "tips" in the ordinary sense of the word.

(e) The additional 50% of the remaining door entry fee given by the Appellant to the masseuses represents consideration by the Customer for sauna services provided by the Appellant.

It will be noted that at the forefront of the Respondents contentions prior to the Hearing of the appeal was the proposition that the masseuses were employees of the Appellant.

The Facts

Counsel presented the Tribunal with a joint minute of admissions dealing with some 89 items. Since that cannot reasonably be summarised the Tribunal decided to re-produce most of it in full.

That in the following items of agreement use of the present tense is deemed to infer that the same facts existed, so far as material, during the period from not later than 1 January 1998 to date, unless the contrary is expressly stated.

That all productions are what they bear to be and copy productions shall be deemed to be equivalent to principals.

That the Appellant trades through a business known as Scorpio Leisure ("Scorpio") operates (sic) at 42-44 Albion Road, Edinburgh.

That between 1992 and approximately 1997 a business offering similar services and also called Scorpio Leisure was owned and operated by Mr Ian Haig personally at the same address.

That as a result of police investigations in about 1996 Ian Haig decided to reorganise the business set up. Those changes were instigated by Ian Haig.

That the Appellant was incorporated or taken off the shelf at that time.

The Appellant was registered for the purposes of Value Added Tax under registration number 682 8073 11 with effect from 1 January 1997.

That Scorpio is operated by the Appellant.

That the premises at Albion Road, Edinburgh are owned by Ian Haig.

That Ian Haig owns the whole shares in a company called Darrock Limited. No other person has a significant interest in that company. The company secretary is a post held by a nominee of Ian Haig.

That Ian Haig is the sole director of Darrock Limited. He has control of Darrock Limited.

That Mr Ian Haig has an arrangement with a company called Darrock Limited whereby Darrock Limited enjoys the use of the premises.

That Darrock Limited and Ian Haig permit the Appellant to occupy the premises.

That Darrock Limited, the Appellant and Mr Ian Haig describe the arrangement in respect of the letting of the premises as being a lease to Darrock from Haig and a sub-let from Darrock to the Appellant.

That the Appellant pays Darrock sums of money at irregular intervals. Those sums depend on the profit made by the Appellant.

That Charles Haig is the brother of Ian Haig.

That Charles Haig is the sole director of the Appellant.

That the shares in the Appellant are held in the name of Charles Haig.

That the furniture, plenishings, and equipment at the premises are owned by the Appellant.

That Charles Haig receives remuneration from the Appellant for his services as a director and manager. He has, on occasion, received small sums by way of dividends on his shares.

That most of the money otherwise constituting profit of the Appellant is transferred in the manner hereinbefore set out to Darrock Limited.

That the amount of money paid to Darrock Limited from the operations of the Appellant is substantially greater than any monies paid to Charles Haig by way of remuneration or dividend from the operations of the Appellant.

That Ian Haig is company secretary of the Appellant.

That Scorpio operates under an entertainments licence granted by the City of Edinburgh Council. The licence holder is Charles Haig.

That formal management of the Appellant is conducted by Charles Haig.

That practical day-to-day management of the Appellant's business comprising Scorpio is conducted by Charles Haig and Ian Haig. The business is run on the basis that during opening hours one or other man will be present on the premises. Occasions when this does not occur are rare and arise only from illness or pressing alternative engagements. When present Charles Haig and Ian Haig will man reception. When they are both absent, reception will be manned by a woman from among the women otherwise present on the premises to work.

That in their activities in connection with Scorpio, the premises, and the women working therein, Ian and Charles Haig act on behalf of the Appellant.

That Ian Haig is generally present on the premises as often as his brother.

That the Appellant provides security in connection with the operation of the business including the protection of the women working at the premises.

That the Appellant provides and funds the provision of all essential services at the premises including telephone, gas, electricity and maintenance.

That the Appellant carries public liability insurance and employee liability insurance in respect of Scorpio.

That the women working at the premises provide massage and sexual services to the clients attending there. Approximately 95% of clients attending pay for sexual services provided to them on the premises. No men work at the premises providing any such massage or services.

That at least the large majority of the women working at the premises do not have formal massage qualifications.

The Appellant advertises regularly in the press to generate and maintain a client base. The Appellant pays the cost of such advertisements.

That the Appellant's advertisement in the Yellow Pages 2004/2005 advertised that Scorpio had been rated no 1 not only in Edinburgh, but the entire UK for the 10^th successive year by McCoy's Independent Sauna Guide. The advertisement also provided details of the facilities available on the premises including the fact that in the rooms mirrors are located above and around the beds. Similar adverts were placed by the Appellant in earlier and later years.

That the Appellant advertises for women to work at the premises. The Appellant advertises in the Edinburgh Evening News during approximately 40 weeks of the year. Press advertisements prior to 2005 have stated "staff required" or "staff wanted". Since then they have stipulated "sauna/escort workers required". The Appellant pays the cost of such advertisements.

Applicants to work at the premises are interviewed by Ian Haig or Charles Haig.

That in the course of the interviews the women are vetted by Ian Haig as to their likely popularity with clients seeking massage and sexual services.

That applications are sufficiently numerous to allow the Appellant to decline applications from women that it does not consider to be suitable.

That the Appellant is concerned to keep the reputation of Scorpio high in terms of popularity with clients. The choice of women by Mr Haig is foremost in achieving this.

That the women working at the premises are the choice of the Appellant, having been chosen on the basis of the vetting procedure described above.

That Ian Haig will discuss proposed noms de plume with the women and express views on what names are likely to be suitable and successful in the context of the provision of the services.

That the Appellant imposes various rules upon the women working at the premises. There are rules requiring that women are not to attend for work under the influence of drink or drugs; that no women younger than 18 years to work on the premises; and that no alcohol nor drugs are to be consumed on the premises.

That the Appellant monitors the apparel of the women working on the premises. The women are expected to dress in a feminine manner and to maintain an attractive appearance.

That the Appellant has a rule that sexual services provided on the premises are provided with the use of condoms.

That as at 3 May 2005, while a "Pool of Girls Agreement" document was in existence, no woman working at the premises had signed it or a copy of it.

That contact details for successful applicants to work at the premises are kept on a list, this comprising a pool of available women from which the applicant can arrange rotas. The applicant endeavours to keep a pool of 27 or 28 girls.

That the applicant maintains the pool list. In addition to updating the list to reflect women wishing to cease working at the premises, he will on occasion delete the names of women against their wishes on the basis of their performance at the premises and in the provision of services.

That the opening hours of Scorpio are 10am until 10pm; except 1pm until 10pm on Sundays.

That the Appellant arranges with women working at the premises to attend according to a rota made up by Ian Haig. When Ian Haig is unable to attend to this the rotas are drawn up by Charles. However, if Ian Haig anticipates his absence then he draws up the rotas longer in advance.

The business and the rotas are organised on a two shift per day basis. The shifts run from 10am until 5pm and 5pm until 10pm.

That the Appellant also makes up a standby sheet, which is a backup to the rota.

That the rota is designed to accommodate the Haig's anticipated peaks and troughs in demand for the services provided by the women.

That the premises at Albion Road comprise a secure front door with viewing arrangement from a reception area. Beyond the reception is a general lounge area. There is a television monitor there. Further within the premises are 5 rooms where the women provide services to clients.

That each room contains a bed. There is a wall-mounted television monitor and spa bath. Mirrors are located above and around the beds.

A 2-way buzzer system operates between each room and the reception.

That the Appellant displays pornographic films on all television monitors from a central point within the premises. Such material plays all day save for during quiet periods when particular soap-operas are being broadcast.

That the Appellant supplies, in connection with the massage and sexual services provided on the premises, massage oil, towels, condoms, mouthwash and similar goods.

The reception area comprises a desk with a telephone, and various paper handwritten sheets including booking sheets, cash sheets and rota sheets. Supplies of orange and blue towels are kept under the desk. In close proximity are two washer dryers and shelves containing miscellaneous items including toiletries.

That an appointments book is kept by the Appellant at reception. Reception deals with advance bookings for particular women. The book identifies and records the woman, the client by first name, the date and time, and the anticipated duration of the appointment.

That a client seeking entry to the premises will operate a buzzer at the exterior front door.

That the Appellant has control over how many clients are admitted to the premises and who is admitted.

That upon gaining entry to the premises, the client will be at the reception area.

That upon admission the client will be greeted and provided with information by Ian or Charles Haig.

That upon admission the client will be told of the charges made at the door. Those charges depend on the amount of time that the client anticipates he will wish to spend in the rooms with the women.

That the charges are £20 for 30 minutes, £25 for 45 minutes and £35 for 60 minutes. These charges have run for approximately four years.

That the reception is generally manned by either Charles Haig or Ian Haig.

Upon admission the client is provided with one of the blue towels. Charles or Ian Haig beckons one of the women to accompany the client during the initial familiarisation. She takes the client to a communal shower area and changing room. The client has the option of showering and changes into the towel or a robe provided by the Appellant. His clothing is kept in a locker and he places his valuables in a sponge bag which he keeps with him.

If the client does not choose the woman escorting him in the aforementioned manner, the woman then escorts the client back to the communal lounge area. There the client may have a complimentary soft drink, tea or coffee. He chooses a woman from the available women present on the premises.

That the woman takes the client to a room. Choice of room is dictated by practical circumstances including how busy the premises are and any known preferences of the client. Room choice is not primarily made by the woman, but more often by reception. There is no arrangement whereby a woman exclusively or regularly uses one room rather than another.

That the time period that has dictated the money paid by the client at the entrance commences when the client goes to a room with a woman.

That the woman returns to reception and confirms the length of time that the client is expecting to spend in the room. A note is made at reception of the timings.

That the woman is given an orange towel by reception. She takes it back to the room with her.

That the woman and the client discuss the exact nature of the services requested by the client and offered by the woman. Prices are quoted by her according to the nature of the service and its duration. Prices vary from woman to woman and from client to client according to market demand and other factors.

That the price agreed and paid in the room is kept by the woman.

That the woman places the orange towel on the bed and provides the service.

That on completion of the service, the client generally leaves unless he has a desire to receive services from another woman.

That on completion of the service, the woman returns to reception.

That the booking sheets and cash sheets produced are samples readily available at the time of an interview of Mr Ian Haig in March 2005 and related to the periods of time specified therein.

That few if any clients come to the premises intending only to sit in reception and drink non-alcoholic beverages or come to the premises intending only to have a shower or a sauna. Initially in 1992 when Ian Haig operated the premises personally for a brief period persons were allowed to enter purely for a sauna, being charged £1 for 30 minutes; £2 for 45 minutes and £3 for 60 minutes. Initially some 6 persons per day attended on that basis but this tailed off to nothing very quickly. The facility was withdrawn not later than 2001.

That the orange and blue towels are laundered by the Appellant.

If a client remains in a room with a woman beyond the allotted time then the manager will buzz the room to indicate that time is up.

If a woman regularly goes over the allotted time with clients, or she does so when the premises are busy she will be spoken to by the manager in order to prevent recurrence.

If a woman has trouble or difficulty with a client in a room then she operates the buzzer to alert reception. Assistance will be provided by Ian or Charles Haig in that event or, if they are not available then the receptionist.

Cleaning of the premises is done by the women otherwise in attendance. The cleaning materials are provided by the Appellant.

That the Appellant supplies no VAT receipts to women working on the premises.

That www.punternet.com is a website that bears to be operated by an independent person or body that invites and receives from members of the public reviews of the merits of prostitutes working in the United Kingdom and of the establishments in which they work.

That McCoy's sauna and massage parlour guides provide information for the purpose of enabling members of the public to avail themselves of the services of prostitutes working in the United Kingdom.

The respondents supplementary document number 1 is a document prepared by Shepherd and Wedderburn which incorporates the contents of the "addendum" document prepared by Norman Gregor and signed by Ian Haig on or about 3 May 2005 responding to the notes of interview prepared by Fiona Halcro further to a meeting between her and Ian Haig on 4 March 2005 at which Mr Gregor and Alan Kerr were also present. The document prepared by Shepherd & Wedderburn is a mechanical exercise produced for ease of reference. The document is an accurate record of the typed notes produced by Fiona Halcro and reflects the addendum provided by the Appellant. The addendum additions reflect the position of the Appellant.

That the respondent made assessments calculated on the 5 September 2005 further to a decision to assess the Appellant pursuant to section 73 of the Value Added Tax Act 1994. Those assessments were made in respect of quarterly periods from September 2002 to June 2006. The sum calculated by those assessments total £315,866.00 plus interest.

Calculation of the assessments on this basis resulted in a suppression rate of 80%.

However despite the length and detail in the said joint minute a considerable amount of time was spent on oral evidence principally, it requires to be said, in relation to the "employment issue". Mr Haig in his evidence was asked about the document entitled "Notes of interview regarding the working practices of Joppa Enterprises Ltd". Although this was alleged by Mrs Bell to be an accurate account and was referred to by the Respondents Counsel as "minutes" the Tribunal was not satisfied that it formed a clear and sufficient basis for the edifice constructed upon it by the Respondents. It was challenged in several respects after it had been produced to the Appellant and various emendations were suggested in tone and content but not one of these suggestions were accepted or even discussed and accordingly the document cannot under any view be described as a minute. It was sought to be supported in evidence by the only properly described manuscript notes i.e. those taken at the time. The whole was later compiled into a witness statement by Mrs Bell about which more later. Mr Haig denied that he had ever knowingly assented to the proposition that the women on the premises were in fact "staff" or that he had said that he did the hiring and firing of staff. The word "staff" does not appear in the handwritten notes taken by Mrs Bell at the time but had in the advertisements before 2005 (Admission 36) and we cannot accept that Mr Haig ever made any concession that the girls had been described by him in terms indicative of employment. The sauna could be staffed without those there being employees.

Another dispute on the "Notes of interview" arose in relation to the charges made by the women for their services directly to the client. In relation to an alleged scale of charges asserted by Mrs Bell to be prices in Edinburgh for various services it was said that Mr Haig "confirmed that this was accurate" whereas in his evidence, which on this matter we accept he made it clear that he did not vouch accuracy simply that that scale of charges was not out of step. We accept from Mr Haig that he did not know what in fact the women charged the individual clients, that he never received any of that money and so had no means of assessing it. It was admitted (75) that it was kept by the woman. The charge was described by Lorraine Stewart as a matter of negotiation and varied from client to client of which Charles Haig had no knowledge. We infer that that was the pre 2005 situation also.

At the time of the interview there was no formal written agreement between the Appellant and the women. With a view to setting out the proper basis of the arrangement which was said to exist the "Pool of Girls Agreement" was drawn up. Although no earlier documentation existed the actual working arrangement was we find substantially that disclosed in the documents subsequently produced.

The Tribunal accepted the evidence of Mr Haig and Mr Gregor that the documents reflected the contractual arrangements which pertained albeit not reduced to a written form.

The Pool of Girls Agreement

That document which is currently in use purports to reflect the conditions in 2005. Since Mr Haig and Lorraine Stewart gave evidence as to its operation and since we accept that it substantially records the pre-existing conditions it is reproduced below:

Rental arrangements:

What is expected of Joppa Enterprises Ltd

Provide the premises and accommodation.

Arrange and pay for advertising for new girls for pool.

Receive clients at the door, collect the split entrance and massage fee and pass the customer through.

Explain the current charges set at the door and that these are subject to change by mutual arrangement between the pool and the Company.

Supply of towels, robes, soaps, general toiletries, tea, coffee, cold drinks, newspapers, televisions in rooms and lounge and sundries.

The Company is advised and influenced by various agencies interested in health and safety and as a result of these influences and the fact that extra services to customers in the confines of the rooms may be supplied, the Company provides condoms as part of the rental arrangement.

The Company will provide adequate security for the pool of girls while on the premises.

The Company will have the premises available to the Pool of Girls 7 days per week on the basis of two daily shifts (10.00am to 5.00pm and 5.00pm till 10.00pm). On a Sunday there will be one shift (1.00pm till 10.00pm).

The Company will have a fire alarm check once per week, will ensure all the appropriate Licences are provided for the premises and ensure appropriate health and safety measures are in place.

The Company will have the right to withdraw any girl from the list of names of girls in the Pool of Girls. This right is a unilateral right. No reason need be given. For example occasions and circumstances may arise where drugs or drink may be suspected.

What is expected of each girl in the Pool of Girls

Each girl will advise the Company of the shifts she wishes for the following week. Each request must be made at the middle of the week prior to the shift week. The Company will confirm the shifts allocated and if the girl is in agreement with the shifts allocated she will indicate this. A stand-by sheet is maintained to cover call-offs.

Where shifts are allocated each girl is expected to arrive on time. Each girl will be expected to complete each shift in its entirety unless there is a valid reason. Where a shift cannot be worked the Company expects as much notice as is reasonably possible.

Each girl will be expected to be clean, tidy and presentable, wearing appropriate dress. Dress code is dictated by the general choice of the pool of girls and by each individual girl. The Company has the right to advise any girl if it considers her dress code inappropriate and to ask her to take this into account in future.

The girls are expected to be courteous and polite. Girls will be expected to provide a full adult massage to customers. The company considers health and safety as a very important issue and as a consequence of this, provides condoms as part of the rental arrangement between the girls and the pool of girls and the Company. Whilst the Company has no influence on the exact nature of each particular massage treatment it expects condoms to be used should that be appropriate. This policy is recommended by various interested agencies.

The girls are expected to clean and tidy each room immediately after they have used it. The lounge and kitchen area is expected to be kept clean and tidy at all times.

No drug taking will be permitted at any time. Any sign of drug taking will result in the immediate cancellation of the girl from the pool of girls.

Drinking alcoholic beverages on the premises (other than a drink provided occasionally at the end of an evening shift by the Company) may result in cancellation of the girl from the pool of girls. Similarly, attending shifts smelling of alcohol or under the influence of alcohol will result in the girl in question being withdrawn from the pool of girls.

Should any girl have any problems in connection with the ongoing working of the arrangements and agreements outlined in this Agreement she undertakes to approach the company to discuss these. The Company undertakes to inform each girl of any issues arising or with any changes or amendments proposed to this agreement as may arise, and to discuss and agree these as appropriate.

The above arrangements and protocols are hereby agreed.

This document was attacked by Counsel for the Respondents on the basis that it was "self serving" and that it did not appear until after the interview of Mr Haig. It appeared to have been drawn up by amongst others Mr Gregor and not by any lawyer and was accordingly incomplete and should not be regarded.

As stated above the Tribunal accepts that it substantially reflects the working arrangements and that it negates in substantial measure any suggestion of employment, although not as explicitly as the document in the case of Spearmint Rhino (below).

A curious feature of Mr Gregor's evidence was a dispute about the notes Mrs Bell subsequently typed up from her interview with Mr Charles Haig. Mr Charles Haig did not give evidence and accordingly the "Notes of interview" compiled after that interview can be taken as substantially accurate. They do not however in the view of the Tribunal do anything towards establishing any employment relationship between the Appellant and the women.

It was however noted that Mr Gregor declined a copy of the notes of interview. He disputed that note as an accurate statement. He said that he did not think they were necessary and that accordingly they wouldn't be compiled. He said that had he known that such notes would be compiled he would have wished a copy of them since there had been all the fuss with Mr Ian Haig's alleged notes of interview. The Tribunal find it impossible to resolve that conflict as it was expressed to them. What is clear is that no notes of interview were produced to the Appellant until recently and after 6 June 2006 when they were referred to in the List of Documents attached to the Statement of Case. Certainly no attempt was made by the Respondents to ascertain whether or not the notes of that interview could be regarded as "minutes".

As noted the Statement of Case for the Respondents was predicated upon establishing employment. The Tribunal find none of the normal indicators of employment such as are set out in The Employment Rights Act 1996. Equally there are none of the usual indicators or labels that point to the girls providing services as agents for the Appellant. The Respondents, it appeared to the Tribunal, in the person of Mrs Bell had set out to try and establish employment by some other means. It was clear that her entire approach had the purpose of establishing employment of the women. Since there were none of the normal indicators of employment she directed her efforts towards trying to establish employment by way of allegations of control and direction. This echoes through the "Notes of interview". The Tribunal was unhappy about what appeared to them to be a slanted approach to what should have been a fact-finding exercise and indeed it was initially described as a "fact-finding exercise" by the officers of the Respondent. The Tribunal did not have the usual recorded interview material made available to it and so were expected to rely upon the combined recollection and inferences propounded by Mrs Bell. That is not a satisfactory way of establishing liability for a very considerable allegation of suppression. If, as it seems to the Tribunal the purpose of the Respondents' officers was to extract some form of admission from the Appellants then the matter should have been dealt with formally and proper notes kept by a person who is not the interviewer. The members of the Tribunal from their own experience know only too well that there are considerable difficulties in conducting an interview, noting it at the same time and recording it accurately.

From the evidence as a whole the Tribunal find in addition to the Agreed Statements of Fact, that of the charge made at the door by the Appellant, the sum of £5 was separated out and retained by the Appellant and the balance was regarded as being kept for the women. At the end of the day or shortly thereafter that balance was split and one half was removed by the women for her own purposes and the remaining half was with her agreement retained by the Appellant as a payment by her in name of rent.

None of this distribution of the entry fee would have been known to or even suspected by the client paying at the door. So far as he was concerned he paid twice, once at the door which gave admission and once to the girl in the room for such services as she rendered. The payment in the room was as to quantum unknown to the Appellant, in the same way as the money received by the woman from the payment at entry was unknown to the customer.

The Tribunal accordingly is in no doubt that the women on the premises from time to time were self employed. The payments to them are not part of consideration for any supply made by the Appellant. Nor did they act as agents for the Appellant. They acted for themselves.

Construction of the Assessment

The Appellant has all along paid Value Added Tax on the said sum of £5 and the one half of the time related balance. The remaining time related payment is or should be capable of ready calculation. Instead of doing that however an assessment was attempted guessing at the amount of money changing hands between the client and the woman. According to Mrs Kelly this was done by way of scrutinising various aspects from entries printed out from an internet site known as Punternet. The Tribunal was for its edification provided with a bundle of these documents. They appear to be the reminiscences of satisfied or dis-satisfied clients. They described often in enthusiastic detail the women and the events and they also provided a figure of money. It did not appear to the Tribunal that any reliance could be placed on those documents and they were not established by any means of satisfactory proof. Further and in any event it was unknown what the single sum of money referred to in them comprised. Did it purport to be the amount paid to the woman, the amount paid to the establishment or a composite of both? No possible check on the accuracy of any of the information provided by the self-publicising individuals who committed their recollections to the internet could be done. They provided absolutely no basis whatsoever upon which the Tribunal could place any reliance as to the amounts of money changing hands at the Appellants premises between whom or for what.

On that ground alone and regardless of any question of employment the assessment is wholly flawed and could not be supported.

However the sum which is known is that which actually passed between the client and Appellant and it is in a different situation.

It is the view of the Tribunal that that sum was payment for a service provided or facilitated by the Appellant. Its precise sub-division is not related to particular services or known to the payer of the consideration. The service provided to the client was entry to the premises and the opportunity to avail himself of the facilities therein whatever they may be provided by the women present there. That in the view of the Tribunal is the supply and it is taxable.

Other Decisions

The Tribunal were referred to many other decisions none of which were directly in point. A decision of this Tribunal F Di Resta and Another no (18641) dated 4 May 2004 in which Mrs Bell was the principal witness was said to be of assistance. It was however different in its facts and readily distinguishable as the Tribunal member Mr Condie who had sat in that case and in the present one was able to point out specifically. In that case there was no cash obtained and retained by the girl. The charge made for the exotic dance performance was paid to bar staff and accounted for later. The service provided was regarded as a composite one. We do not dissent from the decision or the approach in Di Resta it is simply not the same kind of case. All the cases cited to us are noted in an appendix but we do not regard ourselves as bound by or obliged to follow any of them. The facts in the present case are unique to it and we only note that had the contract between the establishment and the women, the Pool of Girls Agreement, been differently framed there might have been an argument that the reasoning in Spearmint Rhino Ventures (UK) Ltd 207EWHC613 (CH) by Mann J would have required to have been given particular consideration. In the present case however we do not have a clear contract upon which reliance can be placed to exclude consideration of the surrounding circumstances. The circumstances here are not contractually so clear and specific as to exclude the normal inference that what the client paid at the door was payment for a supply of services and subject to VAT.

Decision

The Tribunals decision is that though there has not been a full account of tax due, the assessment is flawed and cannot stand. The Tribunal is unable to ascertain on the information before it, what the correct amount of tax should have been and accordingly gives the Respondent an opportunity to formulate what tax is said to be due on the full door entry fees collected by the Appellant which if it cannot be agreed can be returned to the Tribunal for a decision.

Expenses

The Appellant moved for expenses. The Tribunal reserves consideration of what expenses if any are due and to whom after the amount of tax properly due has been ascertained. Then it can be decided in the light of the whole conduct of the parties and the outcome of the appeal whether any party is entitled to expenses and if so in what sum.

T GORDON COUTTS, QC

CHAIRMAN

RELEASE: 30 MAY 2007

EDN/05/99

APPENDIX

Cases Cited:

Carmichael v National Power plc [2000] IRLR 43, [1999] ICR 1226, HL

C&E Comrs-v-Polok 2002 STC 361

Kieran Mullin Ltd v Customs & Excise Commissioners [2003] STC 274

Ringside Refreshments v Customs & Excise Commissioners [2004] STC 426

Spearmint Rhino-Ventures (UK) Ltd v Revenue and Customs [2007] EWHC 613 (Ch)

Staatssecretaries van Financien-v-Coffeeshop Siberie vof [1999]

Stevedoring and Haulage Services Ltd v Fuller [2001] EWCA Civ 651, [2001] IRLR 627

Byrom & Ors (Salon 24) v Revenue & Customs Commissioners

Card Protection Plan Ltd v CCE [1994] STC 199

Card Protection Plan Ltd v CEC [1999] STC 270

Case C-3/97 Goodwin & Unstead [1998] ECT 1-3257

Case 289/86 Vereniging Happy Family Rustenburgerstraat v Inspecteur der

Omzetbelasting [1988] ECR 3655.

Case 269/86 W.J.R. Mol v Inspecteur der Invoerrechten en Accijnzen [1988] ECT 3627

CEC v Pippa Dee Parties [1981] STC 495

CEC v MacHenry's (Hairdressers) Ltd [1993] STC 170

Cronin v CCE [1991] STC 333

Di Resta t/a Bottoms Up v CEC EDN/03/0088, 4 May 2004

Inland Revenue Commissioners v Aken [1990] 1WLR 1374; [1990] STC 497

Nell Gwyn House Maintenance Fund Trustees v CEC [1999] 1WLR 174; 1All ER 385

R v Goodwin and Unstead [1997] STC 22

Rudd t/a/ Dup's Spa and Sauna, Tribunal Decision 16844, Lon/99/1176, 21 September 2000

Spearmint Rhino Ventures (UK) Ltd [2007] UKVAT V19439 (27 Jan 2006)

Sparkholme Limited t/a/ Top Class Sauna v HMRC Tribunal decision 19187, 14 July 2005