United Kingdom VAT & Duties Tribunals Decisions

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Cite as: [2007] UKVAT V20257

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Dean Richard Macey & David John Atkins (t/a Sandwich Cars v Revenue & Customs [2007] UKVAT V20257 (18 July 2007)

20257

VAT – taxi firm – whether firm or individual self employed drivers supplying services to account holders – appeal allowed in part.

LONDON TRIBUNAL CENTRE

DEAN RICHARD MACEY AND DAVID JOHN ATKINS Appellant

T/A SANDWICH CARS

and –

HER MAJESTY'S REVENUE AND CUSTOMS Respondents

Tribunal: Richard Barlow (Chairman)

Michael Sharp

Sitting in public in London on 21 and 22 May 2007

Mr Tony Mills and Ms Julie Wilkinson for the Appellant

Mr Matthew Barnes of counsel for the Respondents

© CROWN COPYRIGHT 2007


 


DECISION
1. The appellant partnership appeals against assessments to value added tax for periods from 1 June 2004 to 30 September 2004 (in the sum of £10,480) and from 1 October 2004 to 31 December 2004 (in the sum of £7,860). A decision about the date of registration for the partnership is no longer in dispute and the calculation of the assessment is agreed subject to a question of liability which is the sole issue still before the Tribunal. That issue is whether the appellant partnership is making supplies to account customers when self-employed owner drivers drive those customers' employees or nominated passengers in private hire vehicles.
2. Briefly, the dispute arises in the following way. The appellants provide administrative support and other related services to self employed drivers who drive their own licensed private hire vehicles or Hackney carriage licensed vehicles. Mr Barnes accepted on behalf of HMRC that, much of the time, those drivers are acting as principals in providing those services direct to members of the public. The appellant makes charges for its services to the drivers and those supplies are taxable at the standard rate, as the appellant agrees, and tax is accounted for accordingly. The owner drivers are not registered for VAT as their individual takings do not exceed the registration limit.
3. We find the following, mostly non-controversial, facts.
4. The appellants' charge to the drivers is a monthly flat fee irrespective of the amount of time the driver spends driving or the amount he earns. That charge covers the use of a waiting room for the drivers and for passengers who attend the office to wait for a car and for the taking and allocation of bookings by the appellants on behalf of the drivers via the usual type of radio link. Record-keeping by the appellants to comply with legal requirements includes recording on work sheets the starting and finishing points of journeys, the time of the journey and which driver drove the passenger. The fare is usually recorded as well.
5. Allocation of work to drivers is made by the radio operator by rotation and drivers can and sometimes do decline to accept a fare without giving any reason.
6. Drivers work on a pre-planned rota but are free to decline to work on any particular day, to leave early or to arrive late. There are usually between 9 and 13 drivers operating at a time. All the drivers own and use their own cars and some but not all of them attach magnetic Sandwich Cars logos to their vehicles while they are being used as taxis.
7. The drivers take payments direct from passengers in cash, cheque or tokens issued by Kent County Council (redeemable for money). The tokens are issued to the elderly or disabled and have no relevance to the arrangements to be discussed below concerning Kent County Council as an account customer. The appellants also make provision for accepting credit card payments which are paid to their account and the full amount is paid to the driver upon settlement from the credit card company. In some cases at least, there is an addition to the journey price when a customer pays by credit card. In those cases the driver receives the normal or agreed fare but the additional charge is kept by the appellants when they settle with the driver.
8. The drivers take part in discussions which lead to the setting of a price guide for standard fares for local journeys and before changes are made to the list they agree them. For longer journeys fares are quoted on the basis of mileage rates, also set by the drivers, but they are open to negotiation with the passenger by the driver. The appellants do not set the fares for these journeys and have no need to as their income is the flat rate payments from the drivers. For non-standard journeys the drivers may ask at the office what has been charged before for the same journey but we were told, and we find it to be the case, that the reason for that is that the passenger will expect to be charged the same price if he is repeating a journey previously undertaken. The reason is not that the appellants are dictating the fare to the driver. Drivers suffer the loss if a passenger fails to pay.
9. We now turn to the consideration of the account customers in respect of whom the parties are in dispute. The appellants undoubtedly collect the payments from the account customers but the appellants' evidence is, and we find it to be the case, that the full amount collected from the account customer is paid to the individual driver who provided the journey. As the customer has an account payable only periodically and as several drivers may have provided journeys for that customer in any such period, the money has to be routed through the appellants and the payment is not made straight away. Nonetheless the driver does receive the full amount.
10. The account customers need to be considered in two groups and there is a possible variation in treatment in respect of one of the first group.
11. The first group are the contract customers other than Kent County Council. There are several such customers but by far the largest is a local business we shall call A Ltd. The accounts were mostly inherited from previous owners of the business when the appellants took over, including A Ltd's account. A Ltd provided a significant proportion of the activities of the drivers (whether or not they were making the supplies or the appellants were). Despite that, until recently there was no written agreement with A Ltd regulating the operation of the account. None of the smaller account holders had written terms either.
12. We find that account customers (other than Kent County Council) were not promised or guaranteed any particular level of service by the appellants or the drivers and did not promise they would engage the appellants or the drivers for any particular number of journeys. When the account customers did contact the appellants requesting a cab they were allocated to drivers in the same way as cash customers.
13. The only difference between cash customers and the account customers, other than the method of payment, is that in the case of A Ltd only if no drivers are available the appellants will contact other taxi firms in the area to see if they can provide a taxi for A Ltd. In such cases the appellants account to the other taxi firm when A Ltd settles the account. Account customers other than A Ltd are told that no car is available and are left to find their own alternative or they might be given the phone number of another local firm but left to make the call themselves, just as would be the case with cash customers.
14. We do not regard the fact that the appellants would seek to find another firm to make a journey for A Ltd as proving that the appellants were in a contractual relationship with A Ltd or under any obligation to provide services to A Ltd. The appellants argued that as A Ltd was such a big customer for the drivers collectively and as their own income depended ultimately on the continued success of the drivers, from whom the appellants derived their income, it was naturally good business sense for the appellants to seek to satisfy A Ltd's needs even if they were not under any legal obligation to A Ltd.
15. A potentially more significant difference between A Ltd and the other account customers in the first group has come into existence in respect of later periods than those covered by the assessments that are under appeal. There is now a written agreement with a third party who acts as A Ltd's agent in making bookings for cars and settling payments. This may or may not affect the issues between the appellants and the respondents for those later periods but we cannot adjudicate on that as it lies outside the scope of this appeal.
16. The third party acting on behalf of A Ltd and the appellants had a disagreement about slow payment of the account at one point and the drivers or the appellant ceased to provide services to A Ltd via the third party for a time. This was after the period of the assessment but we regard it as significant that even after the account work relating to A Ltd was put onto a more formal basis than it had been the drivers were free to withhold their services and it had been the drivers who decided to do so.
17. Kent County Council and the appellants are parties to agreements called The Kent School Transport Contract and we have seen the 2001version of this which continued to be in force until 2005 when it was replaced by another similarly worded agreement. The terms of the agreement are referred to as "standard conditions of contract" and the operator is defined in this way:

"The "Operator" means the person or persons, firm or company named in the Form of Tender which has been accepted by the Council and includes the Operator's personal representatives, successors and permitted assignees".

The terms include the following:

"The Operator shall employ to provide the Service only competent drivers who are duly licensed …".

18. The appellants admit they are and have been the Operator under the agreement at all times material to this appeal. The terms of the agreements are detailed and include requirements as to safety issues, dress code for drivers and many other matters. The level of service is set by a specification. We were not shown that but it is not in dispute that what actually happens is that the Council issues documents called award documents in respect of individual children or groups of children specifying where they should be picked up and where they should be taken to and specifying a price for the journey at a daily rate. These documents are addressed to Sandwich Cars not to individual drivers and the price is agreed with the Council by the appellants. The prices set by the drivers for normal journeys do not apply. The agreement is non-assignable and cannot be sub-let unless the Council gives its permission.
19. The drivers receive the full payment for the journeys they undertake for the Council under this agreement. Payments are made to the drivers periodically when the Council settles with the appellants. The drivers are not obliged to undertake these journeys but the appellant is in practice able to meet the full requirements of the Council every day.
20. We hold that whether the supplies to the account customers are made by the appellants, as HMRC contend, or by the drivers, as the appellants contend, has to be determined by deciding whether the appellants are acting as agent of the drivers in their dealings with the account customers or whether they are acting as principals. In that context it is particularly relevant to decide if the appellants have a pre-existing obligation to the account customers to fulfil the customers' requirements or are simply dealing with each request for a taxi from the account customers in the same way as they deal with a cash customer (it being agreed in this case that the appellants act as the drivers agents in the case of the cash customers).
21. That approach was adopted in both of the two most recent taxi cases cited to us namely Gibbs Travel –v- The Commissioners of Customs and Excise (ref LON/03/343) and Gemini Cars (Egham) Limited –v- The Commissioners for Her Majesty's Revenue and Customs (Decision 20035).
22. A somewhat different approach was taken by the High Court in a case concerning hairdressing where the issue was whether self-employed hairdressers were supplying services to the salon owner or direct to the customers. In that case, Kieran Mullin –v- Customs and Excise Commissioners [2003] STC 274, Park J held that the critical relationship was that between the hairdresser and the stylist and that that was the "starting point and sometimes the finishing point" for answering the question posed (page 286e).
23. The taxi cases cited have taken the relationship, if any, between the taxi firm (in the position of the salon) and the customer as the main focus of attention. The reason Park J gave for focussing on the relationship between the hairdresser and the salon owner was that the customer would not know whether the hairdresser was potentially acting as agent for the salon or on her own account but the salon owner and the hairdresser would know in which capacity each was acting. In the taxi cases the account holder would be in a rather different position than a customer at a salon because the existence of the account would itself give at least an indication to the customer that the taxi firm might be acting as principal.
24. We propose to apply the approach adopted in the two taxi cases cited because Park J did not hold that the approach he favoured would apply in all cases and because of the difference already mentioned.
25. Having said that, we should note that HMRC did not seek to rely on section 47(3) of the VAT Act 1994 by which an agent acting for an undisclosed or unnamed principal can be deemed to make a supply in some circumstances.
26. The issue therefore remains to be decided mainly on the basis of the relationship, if any, between the account holders and the appellants and we will deal first with the account holders other than Kent County Council.
27. Factors suggesting that the appellants are acting as agents for the drivers in respect of the contract work are that the drivers are self employed and therefore not employees of the appellants (but this is really only a necessary condition for the appellants to be their agents not an indication that they are); that the drivers collectively set the fares; that the drivers suffer any bad debts that may arise; that the appellants do not regard themselves as bound to provide the account customers with a car whenever required; that the drivers receive the full fare and the appellants only receive the flat rate fees from the drivers; that there is no written agreement with the account customers (at the relevant times); that the account customers do not receive a discount or additional charge and are therefore treated the same as the cash customers and that the drivers were free to withhold their services from A Ltd's account work when the third party arranging that work was slow to pay.
28. Factors suggesting that the appellants act as principal are that the appellants have some sort of continuing relationship with the account customers including agreement about how often the customer will be billed; that the appellants treat A Ltd differently from cash customers if no driver is available and engage another taxi firm to carry out the journey under the usual terms as far as the account customer is concerned; that the informal dress code is influenced by the requirements of the account customers and that Sandwich Cars advertises in its own name.
29. We have to weigh up the competing factors. We consider it particularly relevant that the drivers receive the full fare for the account work. This is a significant distinction to the case of Gemini Cars where there was a charge to the driver by Gemini in the case of account work which suggested that the work, as it were, was Gemini's work in the first place and that the driver had to pay Gemini for the opportunity to carry out the work on their behalf. Another distinction between this case and that one is that the account customers were charged an additional fee in that case whereas in this case the account customers are charged the same fares as cash customers. That meant that Gemini had a formal contractual relationship with the account customers which is absent in this case. The appellants' activities comprise services rendered to the drivers for a consideration and are therefore taxable even though the customers' payments are paid in full to the drivers. The fact that the appellants withhold their fees from the money collected by the appellants from the account customers and then only pay the balance to the drivers is simply a contra transaction for the sake of convenience.
30. We do not regard the fact that the appellants will seek to engage another firm to satisfy a demand from A Ltd where none of the drivers is available as very significant. That is just good business practice. We do not regard it as proving that the appellants either have or even regard themselves as having any legal obligation to fulfil requests for transport from A Ltd.
31. We hold that the supplies of services for the account holders other than Kent County Council were by the drivers at the relevant time.
32. The account work for Kent County Council was of a quite different nature. There was a formal agreement with Kent County Council that was only consistent with the appellants acting as principal and we hold that those supplies were made by the appellants acting as principal.
33. Those holdings should be sufficient to decide all outstanding issues between the parties and the appeal is therefore allowed in part. However, this Decision is a decision on a preliminary issue and if any further issues have to be resolved the parties are at liberty to request that the case be restored to the list for further hearing.
34. If either party wishes to make an application in respect of costs it is directed that that application should be made to the Tribunal within three months of the release of this Decision.
RICHARD BARLOW CHAIRMAN RELEASED: 18 July 2007

LON/05/0551