United Kingdom VAT & Duties Tribunals Decisions

---

You are here: BAILII >> Databases >> United Kingdom VAT & Duties Tribunals Decisions >> Starline and Wessex Taxis Ltd v Revenue & Customs [2007] UKVAT V20294 (10 August 2007)
URL: http://www.bailii.org/uk/cases/UKVAT/2007/V20294.html
Cite as: [2007] UKVAT V20294

---

[New search] [Printable RTF version] [Help]

---

Starline and Wessex Taxis Ltd v Revenue & Customs [2007] UKVAT V20294 (10 August 2007)

20294

Who makes a supply – principal and agent – taxi drivers driving Appellant's taxis – fees received from rank journeys, telephone bookings through the Appellant, and from the Appellant's account customers – who performed the service – what consideration was received for it – what was VATable

LONDON TRIBUNAL CENTRE

STARLINE AND WESSEX TAXIS LTD Appellant

and –

THE COMMISSIONERS FOR HER MAJESTY'S REVENUE & CUSTOMS Respondents

Tribunal: CHARLES HELLIER (Chairman)

CLAIRE HOWELL

Sitting in public in Bristol on 5 and 6 June 2007

Viscount Dilhorne instructed by K S Carmichael, for the Appellant

Elisa Holmes instructed by the Acting Solicitor for HM Revenue & Customs, for the Respondents

© CROWN COPYRIGHT 2007


 


DECISION

1. The Appellant (or 'Starline') runs a taxi business in Warminster. It provides cars to drivers who drive customers. The issue in this appeal is whether it is the Appellant which provides the taxi services to the customers in the circumstances in which the customers pay the drivers directly. Although Starline has drivers who are its employees the appeal relates only to journeys provided by drivers who have a "contract for services" with Starline (and are accepted by the Respondents as not being employees).
2. The Respondents decided in May 2000 that these services were provided to the customers by the drivers and not by Starline but changed their minds some 2½ years later and by letters of 11 October 2002, 14 November 2002 and 5 March 2003 notified the Appellant that they had decided that Starline provided the services. This decision was upheld by the Respondents' reconsideration team in November 2003. Starline appeals against this decision.
3. We heard oral evidence from Anthony Denis Berridge the managing director of Starline; Garvin John Mahoney, James Spence, and Paul Ian Macdonald each of whom drove the Appellant's taxis; and three of the Respondents' officers Susan Jane King, Susan Giles, and Leslie George Bingham. All these people provided witness statements. We admitted the uncontested witness statement of Andrew Thomas Kerr a partner in Pearson May, Starline's accountants, and had before us copy documents including the standard contract of employment applicable to some drivers, copies of the contract for services which other drivers had with the Appellant, and copies of some of the advertising material promulgated by the Appellant.
4. From that evidence we find the following facts in addition to any set out above in relation to the period from 2002 onwards:

(1) The Appellant's taxis are involved in making a supply of taxi services in broadly three situations:-

(i) where a customer hails a taxi in the street or takes a taxi at a taxi rank. We shall call these "rank journeys";

(ii) where a customer who does not have an account with Starline telephones, or walks into, Starline's offices and asks for a taxi. We shall call these "telephone bookings"; and

(iii) where a customer has an account with Starline and arranges with Starline for regular or specific taxi journeys. We shall call these "account journeys".

Account journeys account for about 60% of the work.

(2) The fee for a rank journey will be paid to the driver in cash or by cheque. Where the journey falls within the West Wiltshire area the fee for the journey is determined by reference to the amount shown on the standard meter. It will not be more than that amount and normally would not be less. Outside that area it will be set by agreement or by reference to Starline's standard charges for longer journeys. If the fee is paid by cheque the cheque will be made out to the driver if he or she has a bank account, and to Starline if he or she does not.

(3) The fee for a telephone booking will generally also be paid to the driver in cash or by cheque in the same way as for a rank journey. In some circumstances however Starline will ask for a deposit to be paid before the journey. In those circumstances the deposit is paid to Starline and the balance is paid at the end of the journey to the driver in cash or by cheque in the same way as for a rank journey. The fee for a telephone booking will be agreed by Starline with the customer at the outset or determined by the metered amount at the end of the journey.

(4) The fees for account journeys were agreed between Starline and the customer. Generally Starline would bill the customer at the end of a period. Starline would be paid by the customer.

(5) Some seven of the drivers were employed by Starline; some 28 drivers were parties to contracts for services with Starline. We refer to the latter as self-employed drivers. It was accepted by the Inland Revenue, and was accepted by the Respondents before us that the self-employed drivers were not employed by Starline. In the remainder of those findings of fact our references to 'drivers' are to the self-employed drivers.

(6) A driver picking up a customer at a rank or on the street could refuse to take the customer in specified circumstances (such as where the customer appeared drunk) but otherwise was required by the hackney carriage licensing regulations to take the customer.

(7) When Starline had arranged an account journey or a telephone booking with a customer it relayed the request to the nearest available driver via a radio linked computer data head installed in the taxi. The driver would use the data head to indicate whether he or she intended to accept the job, and on arrival could decide whether to accept or refuse the customer. Unlike the position for licensed rank work, no reason was required by the regulatory régime to be given for a refusal, but it was recognised by the drivers that a refusal otherwise than for good reasons could be commercially damaging.

(8) The data head enables Starline to keep track of the taxis' positions. If a driver accepted a rank journey he or she would enter the destination on the data head. The system recorded the journeys undertaken by each taxi, but did not distinguish between rank journeys and telephone bookings.

(9) In allocating account and telephone journeys to drivers, Starline does not distinguish between the employed and self-employed drivers.

(10) We shall return to the terms of the contracts for services with the self-employed drivers later but for present purposes we note that each contract provided that a percentage (we use a figure of 62% in the discussion below) of the fee received by the driver from rank journeys and telephone bookings was to be paid to Starline, and that Starline would pay the driver a percentage (we use 38% below – it was 100% minus the earlier percentage) of the monies receivable from account customers.

(11) At the end of each week the drivers meet at Starline's premises to settle accounts. The drivers would calculate the balance due by them to Starline or vice versa and their calculations would be reconciled to Starline's records. Discrepancies would be investigated and resolved. The computation would be for example:

£

Cash journeys (rank and telephone) 200

Account journeys 100

300

Drivers retention 38% x 300 114

Cash received (200)

Due to Starline 86

The Driver's retention could equally well be expressed as 38% of Account journeys plus 100% - 62% = 38% of cash journeys.

(12) If a driver took a cheque from a customer and the cheque bounced then both where the cheque was made out to the driver and where it was made out to Starline, the driver was treated as having received the money and bore the loss. Thus in the case of a cheque made out to a driver, the driver remained liable to pay, and accounted to, Starline for 62% of the amount of the cheque.

(13) The taxis driven by all drivers are owned and maintained by Starline. Starline pays the road tax, fuel, servicing and valetting costs. The cars bear on the outside Starline's logo and phone number. They also carry, in accordance with the hackney carriage regulations, the driver's name.

(14) Drivers also clean the cars. Mr Macdonald told us that he spent quite a bit of time and money buffing it up and cleaning. He did this in order to attract customers.

(15) When not in use for taxi journeys about half the cars are kept at Starline's premises. There is room for half of them only. The remainder are kept at the relevant driver's home.

(16) Starline places adverts in Yellow Pages and has a website. The Yellow Pages adverts give its telephone numbers and address and indicate that it runs a computerised service. The website material included the following statements:-

"The company has grown to a fleet of 39 taxis and 2 limousines employing a staff of 50 plus personnel";

"Experience a stress free journey to and from UK airport terminals … or train stations. The same driver, a lady driver can be requested, will collect you and deliver you back in good time …".

It also included a schedule of fixed prices for journeys to local airports.

(17) The Contract for Services provided for no maximum or minimum time during which the taxi should be used or be available for use. Drivers provided taxi driving services at times to suit their own circumstances. Generally drivers would make themselves available for work during the busier times of day when more fares were to be earned. Some drivers would drive until they had earned a particular sum for the week and then take the rest of the week off.

(18) The Contracts for Services were generally in the same form. They were concise documents. We set out below the relevant provision in the case of Mr Macdonald's contract:-

"…2. Mr P Macdonald will provide taxi driving services.

3. Mr P Macdonald will pay to Starline (Beeline) Taxis a percentage of his/her weekly normal fares see Column B of attached appendix (such percentage to be reviewed from time to time).

In respect of work for account customers, drivers will be offered fares as agents for Starline. If these are accepted the driver will be paid the fee as set out in Column (C) of appendix.

4. Starline (Beeline) Taxis will provide a motor car and be responsible for paying all running expenses i.e. fuel, road tax, servicing, insurance.

5. Mr P Macdonald will not be entitled to holiday pay or sick pay.

6. Starline (Beeline) Taxis will not set hours to be worked by Mr P Macdonald.

7. Mr P Macdonald will be entitled to send a suitably qualified substitute … to undertake the services to be provided.

…

10. Both partners acknowledge that this Contract for Services can be terminated at any time without notice. Mr P Macdonald is not under an ongoing obligation to provide taxi driving services and Starline (Beeline) Taxis is not under an ongoing obligation to contract for such services.

…

12. Mr P Macdonald will be responsible for any damage to the Starline (Beeline) vehicle that is supplied under the terms of this Contract.

13. Mr P Macdonald will be liable to reimburse Starline (Beeline) Taxis in the case of a fault, accident any insurance excess (currently £250.00) that is paid out by Starline (Beeline) Taxi, …".

The Appendix provided as follows:

"Appendix

(A) (B) (C)

Weekly Total Commission paid Account Fees

Aggregate Gross Fares to Starline (Beeline) Taxis Paid to Driver

Pounds Sterling % of Weekly Total

Under 199 62 38

200-299 61 39

300-399 60 40

400-474 59 41

475-549 58 42

550-649 57 43

650-Plus 56 44

Weekly commission paid by drivers to Starline Taxis reduced for:-

Loyalty bonus – continuous service per year 0.5 Maximum of 2.5%

Working the evening shifts until night clubs end 2 Minimum of 2 nights

The above rate will not apply to a driver who cannot do night clubs

Weekly commission paid by drivers to Starline Taxis increased for:-

(1) Unless a taxi is parked at home 0.5

(2) Where there is unsatisfactory personal appearance 4

(Driver should wear a collar, tie and trousers or be smartly dressed)

(3) Where the cleanliness of the taxi is not maintained 2

(4) In the event of there being late timekeeping at the start of a shift 2

(5) Where there is a customer complaint of service/care that is upheld 2

It is agreed that the decision reached by the partners of Starline (Beeline) Taxis regarding the above will be final."

(19) Whilst the drivers were aware of the effect of the potential reductions in income to which the second part of the appendix could give rise, none of the drivers who gave evidence before us had experienced any such reduction.

(20) In the case of Mr Mahoney, he had negotiated a contract with a different clause 3. It read:-

"3. Gavin Mahoney will pay to Starline (Beeline) Taxis 55% of his takings."

Mr Mahoney told us, and we accept, that he had negotiated this clause because he preferred it to the potential uncertainty of the varying percentages, but that he accepted that the adjustments for lack of cleanliness etc. applied to him although not specifically incorporated into his contract.

(21) The Appellant acquired its business in 2002 from a partnership in which Mr Berridge had been a partner. The structure of the contractual relationships with the drivers had been created in 2000, and was inherited by the Appellant. Before 2000 the business had employed all its drivers. It had started to make losses. Generally employed drivers had little incentive to seek new work. Under the new system drivers had the responsibility and an incentive to seek work. After 2000 the fortunes of the business changed and it became profitable.

Areas of Agreement and Dispute

5. It was common ground that where employed drivers provided taxi journeys for customers the VATable supply of the taxi service was made by the Appellant.
6. It was also common ground that taxi services supplied to account customers were VATable supplies of the Appellant (whether the driver was employed or self-employed).
7. It was also common ground that the self-employed drivers were not employees of Starline. We accept that conclusion: there was no evidence before us that Starline had the degree of control over the drivers, or the responsibility to provide them with work, or that the drivers had contracted to provide personal services to Starline or were not to be described as in business on their own account which would indicate an employment relationship. As a result we accept that whilst in the case of the employed drivers an agency can be read into this relationship with Starline as a result of their employment terms – both an agency to contract on behalf of Starline and an 'agency' in a looser sense of that word to perform or act on behalf of Starline, neither of those types of agency can automatically be read into the relationship between Starline and the self-employed drivers.
8. The Respondents contended:-

(i) that in relation to rank journeys, the drivers contracted with the customer as agent for Starline, and in driving the customer fulfilled Starline's obligation to the customer perfecting Starline's supply of a taxi journey to the customer; and

(ii) that in relation to telephone bookings Starline contracted as principal with the customer and used the services of the driver to fulfil its obligations under that contract thus supplying the customer with the taxi journey, and that in each case the cash paid by the customer, although received by the driver, was the consideration received by Starline for its supply, and in both cases, the driver supplied driving services (to Starline) in return for a percentage of the fare.

9. The Appellant contended:-

(i) that there was no relationship of agency between the driver and Starline in relation to rank journeys, but Starline was the agent of the driver in relation to telephone bookings;

(ii) in the case of both rank journeys and telephone bookings the driver made the supply of the journey to the customer in return for the consideration he or she received from the customer; and

(iii) Starline's only supply was a supply to the driver of the car and related services under the Contract for Services, and the consideration it received for that supply was the percentage (the 62% figure) of the consideration received by the driver.

The questions for us are thus who made what supplies and in return for what consideration?

The relevant law

10. The Sixth Directive was the directive in force at the relevant time.

Article 2 provides that:

"the supply of … services for a consideration … by a taxable person"

shall be subject to VAT.

Article 6 provides that:

"1. A supply of services shall mean any transaction which does not constitute a supply of goods …

When a taxable person acting in his own name but on behalf of another takes part in a supply of services, he shall be considered to have received and supplied those services himself."

Article 11 provides that:

"The taxable amount shall be … everything which constitutes the consideration which has been or is to be obtained by the supplier from the purchaser, the customer or a third party for such supplies …"

These provisions are enacted in domestic law in the VAT Act 1994. Of note is section 5(2)(a) which provides that " 'supply' … includes all form of supply, but not anything done otherwise than for a consideration."

11. In determining whether something is done for a consideration the European Court's jurisprudence indicates that the question is determined by whether there is a nexus between the thing done and the thing received such that one is the quid pro quo for the other.
12. It is not necessary of course for the consideration given for a supply to be received by the supplier in order for the supply to be VATable. As Mance LJ said in Debenhams Retail v HMRC [2005] STC 1155 at paragraph [34]:-

"A company cannot avoid VAT supply by providing for part of the price of goods either to be paid to a subsidiary or to be given away, for example to a charity. The Court of Appeal said of consideration in the Trafalgar Tours Ltd v Customs and Excise Commissioners case that: 'The concept of receipt for this purpose is not to be confined to mere physical receipt; anything which is received by persons for and on behalf of the supplier must be treated for this purpose as received by the supplier himself …' ([1990] STC 127 at 135) and the Court of Justice of the European Communities in Kuwait Petroleum said there must be 'a legal relationship between the supplier and the purchaser entailing reciprocal performance' ([1999] STC at para 26) (cf para 8 above). But reciprocal performance cannot be restricted to performance involving the actual delivery of, or payment for, goods and services to the other contracting party. Delivery to the other party's order must suffice; while a person must be treated as having received consideration under a contract, if he stipulates for it to be paid to an associate or given to a complete third party (such as a charity)."

13. We were referred to a number of cases to which we shall come later in the decision, but at the moment the following passage from Park J in Kieran Mullin Ltd v Customs and Excise Commissioners [2003] STC 274 is apposite. The case concerns the supply of hairdressing services by hairdressers who rented chairs at a salon. At paragraph 32 Park J said:-

"Who, for the purposes of the 1994 Act makes to the customer the supply of hairdressing? Is it the [salon] acting by the stylist as agent? Or is it the stylist, acting as principal? In my opinion the answer depends upon the relationship between the [salon] and the stylist. Further the answer does not depend upon what the customer knows about that relationship. Usually the customer will not know about it. This is a matter of common experience in all sorts of contexts … If someone books a car from a local business to drive him somewhere a driver will turn up in a car and he will drive the customer where he wants to go. The customer will pay the fare to the driver. He will have no idea whether the driver is an employee of the business, or a self-employed subcontractor of the business or whether he is a freelance driver … The customer is most unlikely to know the nature of the contractual arrangement, … and it is in that contractual relationship that the answer to the question lies."

14. It seems to us that the enquiry as to how the supply was made may also be looked at from another perspective. That perspective is the search for the consideration for a supply and the nexus between the two. If the salon procures that the stylist does the hair, the stylist by the one act makes two supplies – one to the customer and one to the salon. But the supply is VATable only if it is done for a consideration. If the stylist acts as agent for the salon, then as a matter of domestic law the stylist is the fiduciary of the fee he or she receives for the salon. The money does not belong to him or her and thus the transaction done for the customer is not a VATable supply by the stylist for the consideration paid by the customer, although it might be a VATable supply for the consideration paid by the salon to the stylist. The salon will be entitled to the money because it will have procured the stylist's activities, its procuration will be something done for that consideration and hence is a VATable supply by it. It seems to us that the importance of the question of agency may lie not only in whether power is given to contract on behalf of another but also in what effect the nature of the relationship has on the rights to receive and retain consideration and the extent to which that consideration has the relevant nexus with performance.

The Appellant's case

15. The Appellant starts by pointing to the difference between the terms of the employed drivers' contracts and those of the self-employed drivers. It was clear that the contracts are quite different in many respects.
16. Lord Dilhorne then says that in determining the capacity in which the parties acted, there is no need to go beyond what they spelled out in the contract between them, and there is nothing in the Contract for Services which constitutes the grant by Starline to the drivers of authority to act for it (either contracting on its behalf or performing on its behalf) in relation to rank journeys or the acceptance by the drivers of such authority.
17. He quotes the passage in Halsbury's Law 4^th Edition:

"The relationship of agency exists when one person … has the authority to act on behalf of another … and consents so to act. Whether that relation exists in any situation depends not on the precise terminology used by the parties to describe their relationship but on the true nature of the agreement or the exact circumstances of the relationship between the alleged principal and agent."

18. He says that the true nature of the relationship between Starline and the drivers is spelt out in the Contract for Services. The contrast with the employment contract shows that the relationship is intended to be limited. The history of the agreement – its birth as a result of the financial problems arising from the employed-drivers-only structure shows that a limited relationship was intended. The agency attributes of the employer/employee relationship – the authority to contract on behalf of the employer and the discharge of the employer's obligations by the employee acting with the authority of the employer – were not intended to be, and were not, present in the relationship between Starline and the self employed drivers. Further Lord Dilhorne says that the circumstances are such that it would be wrong to read into the contractual relationship an implied term of agency (in either the narrow contractual agency sense nor the vicarious performance sense), and that it is not possible to find in the parties' dealings evidence for a collateral agency arrangement.
19. Lord Dilhorne says that the modicum of control exercised over the cleanliness and dress of the taxis and the drivers is not sufficient to create an agency relationship; the lack of freedom to negotiate a fare for most rank journeys arose as a result of the Hackney carriage regulations not as the result of constraints imposed by Starline. There is nothing he says in the practical application of the Contract of Services or in what the parties actually did which is redolent of an agency (strict or loose) under which the drivers act for Starline
20. In his skeleton argument Lord Dilhorne argued that in relation to telephone bookings Starline acted as agent for the drivers.

The Respondents' submissions

21. Miss Holmes says that the facts point to the relationship between Starline and the drivers being one under which the drivers are given and accept authority to act for Starline in contracting to provide services and in providing services on behalf of Starline. Thus when a driver contracts for a rank journey he or she does so as agent of Starline, and when a driver undertakes a journey – whether an account journey, or a telephone booking or a rank journey – he does so as agent of Starline performing Starline's duties on its behalf. The following facts she says point to this analysis:-

(1) Clause 2 of the contract provides that the driver "will provide taxi driving services". Whilst the clause does not indicate to whom they are to be provided there is at least a suggestion that they are to be provided to Starline under the contract;

(2) the distinction in the contract between normal (rank and telephone) fares and account fares was artificial. In either case the driver retained the same percentage of the fare : if it was a normal fare he received 100%, paid Starline 62%, and retained 38%; if it was an account fare he was paid 38%. In substance the remuneration for the journey was the same;

(3) the driver did not pay a flat rate rental for the vehicle: if he did that would be more consistent with a non-agency relationship;

(4) it was artificial to treat the relationship between Starline and the driver as different in rank and telephone cases as opposed to account cases merely because the driver physically received the cash in the former cases but not in the latter;

(5) Starline exercised a degree of control over the drivers which was consistent with, and pointed to, a fiduciary agency relationship rather than a relationship without that feature:-

(i) Starline had the power to reduce the driver's net remuneration for uncleanliness etc.;

(ii) Starline fixed the fares for longer journeys, advertised the fixed fares, and the drivers had to accept them. Other fares were governed by the meter and could not realistically be treated as determined by the driver. His lack of ability to fix his fee pointed to acting as agent;

(iii) the cars were owned by the Appellant serviced by it and half of them were kept at its premises;

(iv) the cars bore Starline's logo – an implicit conferring of that authority on the driver, and an acceptance of that authority by the driver when he or she took the car that he or she represented Starline;

(v) the Appellant advertised; the drivers did not. A 'Starline' brand was created under whose banner the services were supplied. The creation of the brand, the marking of the taxis with it and the acceptance by the drivers of the taxis so marked were the giving and accepting of authority to act as agent for the Appellant;

(vi) the deposit cases gave rise to a hopeless confusion in the Appellant's analysis – either all the supply was by the Appellant or none of it was. The supply could not be divided.

The Cases

22. We were referred to a number of cases in which the question of whether a supply was made by one person in his own capacity rather than by a principal through the agency of that person were considered. Each case turned on its own facts and in some cases there were similarities between the facts of the case and those in this appeal. Each party concentrated before us on the similarities or differences according to the conclusion in the case. Although there are two cases (Hamiltax VAT Decision 8948, and Gibbs Travel VAT Decision 18472) whose facts in many respects parallel those in this appeal to which we must refer in some detail, we find the cases cited of greatest use in attempting to distil the principles which must guide us and in identifying features relevant to the application of those principles. We found the following guidance:-

(1) The questions to decide are: what was the relevant supply? And by whom it was made? (paragraph 33 Ringside Refreshments v Customs and Excise Commissioners [2004] STC 426; Cronin v Customs and Excise Commissioners [1991] STC 333 at 337h-338a).

(2) A single course of conduct by one party may constitute two or more supplies to different persons (Lord Millett paragraph 50 Customs and Excise Commissioners v Plantiflor [2003] VRHL 33). The question of whether the supply to either person is a taxable supply depends upon whether it was made for consideration (Plantiflor paragraph 51).

(3) The VAT concept of supply is not identical with that of contractual obligation. There may be cases generally where three parties are concerned in which the contract's definition of the parties' private law obligations neither caters for nor concludes the statutory question : what supplies are made by whom to whom. The VAT nature of a supply is to be determined by the whole facts of the case. It may be a consequence but is not a function of the contracts entered into by the relevant parties (Reed at 595a).

(4) Three archetypes of contractual relationships involving three parties may be identified: (1) where A is obliged to provide service to B and does so through the acts of C ("vicarious performance") (we also refer to this as agency in the "loose" sense); (2) where C as agent for A enters into a contract with B obliging A to provide services to B (the "agency situation" or agency in the "strict" sense), and (3) where A acts as no more than an intermediary between B and C introducing the two so that B can enter into a contract with A (the "intermediary situation") (Customs and Excise Commissioners v Reed Personnel Services [1995] STC 558 at page 590).

(5) Where the persons who performed the acts constituting the supply were not employees the starting point for determining the nature of their relationship with another person who might be treated as having made the supply is the contractual terms between them and that other person (paragraph 33 Ringside; Kieran Mullin paragraph 34).

(6) Those terms may disclose an agency in the strict sense of a person who is authorised to contract on behalf of his principal, and/or an agency in the loose sense of a person who performs on behalf of his principal (See Customs and Excise Commissioners v Johnson [1980] STC 624, and Reed).

(7) The fewer the express terms of the contract the more attention will have to be paid to the way the parties conducted their relations after the contact had been made. (McCullough J at page 223 in Customs and Excise Commissioners v Music and Video Exchange [1992] STC 221).

(8) The true nature of the relationship between the parties is to be gleaned from the overall effect of the documents coupled with any other relevant facts bearing on the question (Spearmint Rhino Ventures v Commissioners of Customs and Excise [2007] EWHC 613 at paragraph 37).

(9) If the terms of the contract do not evince an agency relationship (of either form) the next question is whether the contracts were shams or the parties behaved inconsistently with those contracts (see para 34 Ringside, and paragraphs 36ff in Kieran Mullin); and whether there are other collateral arrangements disclosing an agency.

(10) Relevant to the question of the nature of the relationship between the contracting parties (after having considered the contract) are:-

(i) the degree of control exercised (see Reed and Kieran Mullin) but although control may be consistent with agency it does not create an agency (para 35 Spearmint Rhino)

(ii) the commercial situation in which the parties operated (see Hamiltax and Gibbs Travel)

(iii) the risks borne by the parties

(iv) advertising, fee setting, the use of a name, and freedom to refuse or to provide services (Cronin v Customs and Excise Commissioners [1991] STC 333 at page 340).

Discussion

23. There is no question that the driver did something for the customer. The customer got a taxi ride. So far as the driver is concerned he clearly made a supply to the customer; but that would be a taxable supply only if he received consideration for it. If there was a relationship between the driver and Starline under which the driver received consideration, it would be a taxable supply. So far as the driver is concerned the relevance for present purposes of his relationship with Starline is whether (a) it bestowed on him the right to consideration and (b) whether it meant that what he physically received from the customer he received for himself or on behalf of Starline.
24. From Starline's perspective the question of who physically receives the consideration is not relevant; the question instead is the capacity in which it is received: it could be received by the driver as a fiduciary for Starline in which case it is consideration received by Starline; it could be received by the driver at the direction of Starline and belong to the driver – in that case too it would be consideration received by Starline; or it could be received beneficially by the driver otherwise than at the direction of Starline in which case it will not be consideration received by Starline. The way it is received will depend upon the parties to the agreement or arrangement under which it is paid and the arrangement between Starline and the drivers. What it is received for – what it is connected to – will depend on the same questions. But the answer to each of those questions depends upon the factual circumstances. They may be different depending upon whether it is a telephone booking or a rank journey. In the case of rank journeys it is only if the driver contracts as agent for Starline that there can be any nexus between the fare paid and something done by Starline. In the case of telephone bookings if Starline is merely an agent of the driver the fare will not be either consideration it receives (either by operation of trust or by virtue of its implicit direction) or linked to anything it does or procures.
25. In each case the starting point for the question must be the terms of the written agreement between Starline and the driver. But the enquiry must not stop there. We must ask how the arrangement operated in practice; whether the parties' behaviour suggested that there was more to the arrangement that the terms of the agreement. But we must not be concerned with the perceptions of the customer: the answer lies only in the arrangements between Starline and the driver (see Kieran Mullin paragraphs 32 and 33).
26. In looking at the parties' behaviour we should consider whether they complied with the agreement, whether it was a sham, how tight the control was over the drivers (Kieran Mullin paragraph 37) and any other relevant features. It seem to us that these considerations could yield different answers in relation to the different questions : (a) was there vicarious performance by the drivers of Starline's obligations, (b) did Starline constitute the drivers its agent to enter into contracts on its behalf and ( c) did the drivers constitute Starline their agent (in the strict sense) to enter into contracts on their behalf in relation to telephone bookings.
27. We shall consider the telephone bookings and the rank journeys separately for the reasons in the preceding paragraphs and because the nature of the agency alleged in relation to each is different. For telephone bookings Viscount Dilhorne argued that Starline acts as agent for the driver; for rank journeys Miss Holmes argued that the driver acts as agent for Starline. In each case the issue is who made what supply for what consideration.
28. We find that the drivers and Starline acted in accordance with the Contract for Services and that they recognised and abided by its terms. We find that it was not a sham.

(a) Rank journeys

(i) There is nothing in the terms of the Contract of Services which could be said to be authority given by Starline to the driver to contract on its behalf in relation to such journeys. There is no explicit creation of agency (either in the strict or the loose sense).

(ii) What of the terms one might imply into that contract? We see no need for the import of agency (either in the strict or the loose sense): it does not seem necessary for the proper functioning of the contract in relation to rank journeys; neither do we believe that if asked the parties would have said when they formed the contract "Yes of course that's meant to be in it".

(iii) We do not see the similarity in the payment structures in the appendix to the Contract of Services as an indication that an agency relationship is implicit in the contract. The fact that the same net proportion of each fare accrues to the driver for both the account journeys and the rank journeys shows a similarity in the economics of the two transactions but no more. It is not a clear pointer to the conferring and acceptance of an agency (strict or loose). Indeed the mechanism used points somewhat away from a fiduciary relationship : rather than being obliged to account for all the fares received and then receiving back a fixed percentage, it is only the fixed percentage which has to be surrendered.

(iv) We also find some of the other terms of the contract otherwise to suggest that no such agency was intended: the fees for rank work are described as "his/her normal fares", the payment to Starline is a 'fee' or a 'commission'; and the express use of "as agent" in the second part of clause 3 in relation to account journeys, although it has the loose sense of agent – the appointment of the driver vicariously to perform on behalf of Starline, suggests that no fiduciary or agency relationship of either sort was contemplated in relation to rank journeys.

(v) Thus we find neither in the written terms of the contract nor in any implied terms the grant and acceptance of any agency (strict or loose) by Starline to the drivers in relation to rank journeys.

(vi) Was there then some collateral bestowing on, and acceptance by, the drivers of an agency for Starline in relation to this work? The most weighty factor pointing that way seems to us to be the use of the Starline logo on the cars. The cars were thus presented to the public as Starline cars and the drivers assented to that presentation. On the other hand the fact that drivers bore the cost of dishonoured cheques suggest that the relationship between Starline and the drivers was not one under which the driver received the fee as fiduciary for Starline but one under which the driver received the fee beneficially.

(vii) We do not find that the control exercised by Starline over its drivers in relation to cleanliness etc was a clear pointer towards agency in the case of rank journeys. The control exercised did not affect the kind of bargain that could be made or whether or not a bargain would be made with a customer. It may be a pointer towards a brand for Starline along with the logos on the cabs, but it did not independently point towards agency in either sense. Mr Macdonald told us that he spent time cleaning his car to attract customers: in this aspect the drivers and Starline may have had a common interest but that is not clear a pointer to agency.

(viii) Overall we conclude that there was no relationship of agency between Starline and the drivers in relation to rank journeys under which the drivers contracted as agents of Starline, received the fees on behalf of Starline or performed vicariously its obligations : the strongest pointer towards agency does not in our view outweigh the impression gained from the contract that an agency relationship for rank journeys was neither wanted nor intended.

(ix) The drivers did something for the customers. That doing is capable of being a supply for VAT purposes if it was done for a consideration. The fee the driver received from the customer was the quid pro quo for what the driver had done and, because the driver was not a fiduciary of Starline in respect of it, it belonged to and was therefore received by the driver. The driver therefore made that VATable supply to the customer for the fare.

(x) Starline of course made a VATable supply to the driver: of the car, etc, and the 62% etc of the fare for the rank journey was part of its consideration for that supply.

(b) Telephone bookings

(i) There is nothing in the Contract for Services which appoints Starline the agent of the driver to contract for such services on his behalf. And, given the provisions of clause 10 which expressly disavow any obligation of the driver to provide, and any obligation of Starline to contract for taxi driving services, such a provision would be at odds with the express terms of the contract.

(ii) We saw no evidence to suggest that the drivers had otherwise conferred any general authority on the Appellant to contract on their behalf in this respect. The nearest was the advertising statement that the customer could have the same or a lady driver, but that did not carry with it any express or implied consent given by the driver.

(iii) We note that it would be difficult to determine which driver was agent for Starline since the driver to be used for the journey may not have been selected at the time the telephone call with the customer was completed. Thus the practical features of the arrangements are inconsistent with such an agency relationship.

(iv) We conclude that Starline was not the agent of the driver appointed to contract on his or her behalf for telephone bookings.

(v) So when the customer telephoned Starline and Starline agreed to send a taxi for the journey we find that Starline was contracting as principal. We find that the procedure in relation to deposits reinforces this conclusion and differentiates this situation further from the rank journeys. But that is not the end of the matter.

(vi) Lord Dilhorne suggested that even if the initial contract was made between the customer and Starline, there was a separate bargain between the driver and the customer pursuant to which the driver provided the taxi service to the customer and the customer paid the driver. This contract, made at the time the customer stepped into the taxi, superseded any contract made by the customer with Starline.

(vii) If that were the case then the death of the original contract occurred either by novation of that contract so that the driver replaced Starline as a party to it, or as the result of a term of the contract between Starline and the customer that when the taxi turned up a fresh contract would be made with the driver. Both of these possibilities we dismiss: we do not see how the original contract could be novated without the action of Starline, and there was no evidence, nor do we believe, that the ordinary customer in agreeing for a taxi on the phone with Starline would have agreed to such terms.

(viii) Nor do we think that the contact between the customer and Starline can be treated as a form of introduction service (the third archetype referred to at paragraph 22(4) above) under which the result of the telephone consideration is merely that Starline has agreed to get a taxi driver to turn up and to offer to take the customer on the journey. Starline's advertising material and the general evidence of Mr Berridge evinced no such precision in the dealing with the customer, and it seems highly unlikely that a customer would have expected such a result from his conversation with Starline.

(ix) As a result we find that the driver vicariously performed Starline's obligations in these circumstances. He was an agent in a loose sense. But in that capacity he would hold the fare for Starline. Thus we find that the fee paid by the customer to the driver at the end of the journey was paid to the driver for the benefit of Starline and that the driver held it for Starline. Thus the consideration received by Starline for performing under its contract with the customer (by procuring the journey) was the full amount of the fee. (Or put another way one of the implicit terms of the contract between Starline and the customer is that the fare should be paid to the driver and the making of that payment is the consideration received by Starline.) The driver by delivering the customer provided a service in return for a share of the fare.

(x) The position in this circumstance differs from that in the case of the rank journey because of the contact between Starline and the driver after Starline's contact with the customer. In making that contact with the driver Starline offers the job to the driver, but it is Starline's job because Starline agreed it with the customer. In the case of the rank journey Starline may be told via the radio head that the job is being undertaken but it has no further role to play – the job remains the driver's job. It is the nature of that contact – the offer by Starline and the acceptance by the driver of the job which determines and differentiates the nature of the relationship and means that the money is received for Starline, and the driver is working for Starline. The actions of the taxi driver in making the journey constitute both the fulfilment of Starline's obligations (and thus complete a supply by Starline) and a supply by the driver to Starline. Each of those are VATable services supplies because they are made for (separate) consideration. It is also true that the driver does something for the customer but that is not done in return for anything moving from the customer to the driver as consideration (unless perhaps the customer paid an extra tip) and is not therefore a VATable supply by the driver for the fare.

(xi) We do not find that the fact that all the cost of a dishonoured cheque falls upon the driver in this situation in the same way that it does in the rank journey situation dissuades us. The driver's acceptance of the cheque brings a risk to the driver under the terms of the bargain between Starline and the driver, but because that bargain is different from that in operation in the case of the rank journey (because of the communication between Starline and the driver) we do not believe that this factor has the same persuasive weight.

29. We noted in the section above dealing with rank journeys that the Contract for Services used the term 'agency' in relation to account journeys only. We took that as some support for the conclusion that an implied agency was not to be read into the contract (in a strict or a loose sense). In the case of telephone bookings we have concluded that there is an agency in the loose or vicarious performance sense under which the driver performs Starline's obligations. But we do not find that that is an implied term of the Contract for Services, rather it arises from the dealings between the parties in relation to telephone bookings. Those dealings are different from the dealings in relation to rank journeys, and the same inference cannot in our view be drawn in relation to rank journeys.

Hamiltax and Gibbs

30. Hamiltax v Customs and Excise VAT Decision 8948, and Gibbs Travel v Commissioners of Customs and Excise VAT Decision 18472 were both decisions dealing with supplies by taxi firms and the self-employed taxi drivers who drove the taxis. In each case the question was whether it was the taxi firm that made the supply to the customer in return for its fare or whether the far was the consideration for the supply by the taxi driver. In Hamiltax the tribunal held that the firm made VATable supplies to both account and cash paying customers and that the drivers acted as agents for the firm. In Gibbs the tribunal found that the firm made supplies to the account customers, but that the drivers did not act as agents for the firm in relation to the cash paying customers and accordingly that the firm did not make the supply to those customers of the journey in relation for the fare.
31. In both Gibbs and Hamiltax there was the distinction between account journeys and other (cash) journeys which exists in this appeal.
32. The factual pattern in Hamiltax was similar to that in this appeal in particular:-

(1) drivers could accept or refuse work;

(2) the firm provided the cars;

(3) the drivers retained 30% of the fare for cash work, and received 30% of the fare for account work;

(4) if cheques were dishonoured the economic loss fell on the driver;

(5) the firm rather than the drivers advertised the taxi services;

(6) the cars bore the firm's logo;

But there was one significant difference: there was no written contract between the firm and the drivers.

33. The tribunal in Hamiltax indicated that it was satisfied that arrangements for cash and account work could differ, and noted that there was no evidence that the drivers and the firm had "agreed in terms that in relation to cash work the drivers should act as agent for Hamiltax". The tribunal then weighed the various factors, the strongest for the lack of agency being the financial risk borne by the drivers, and the strongest for the existence of agency being the advertising, the logos on the cars, the fact that the driver provided virtually nothing but his services, and the drivers' undertakings to be available for eight hour shifts, and found that it was unreal to distinguish between cash and account work, and that the drivers acted as agents fro Hamiltax in undertaking account work.
34. The distinction between the facts of Hamiltax and those in this appeal lies mainly, in our view, in the absence of a written contract. In Hamiltax the tribunal had to determine the nature of the arrangement between Hamiltax and the drivers from the way it was operated; in this appeal we start with the written contract. That contract has no express or implied agency. It was not a sham. The parties acted in accordance with it. Any agency has therefore to be found in collateral dealings viewed, in the case of this appeal, in the light of that contract. The tribunal in Hamiltax did not have the same starting point nor the colour given to the arrangements by their formal terms. Here there is in the contract at least a verbal if not an economic distinction between cash and account work. We also note that the tribunal in Hamiltax was influenced by the drivers' obligations to undertake an 8-hour shift and by the daily accounting to the firm for cash work at the end of the shift; neither of those features were present in this appeal. (Although the Appendix to the Contract contains a reference to being late for a shift we accept the evidence of Mr Berridge and the drivers that the drivers were not obliged to work particular hours.)
35. In Gibbs the facts were somewhat more distant from those in this appeal than were the facts in Hamiltax. In particular, cash work was not obtained by telephone and the appellant did not operate a radio service or advertise in its own name, although it did have account customers. In Gibbs the tribunal weighed the various factors and found that there was a difference between cash and account work which justified a conclusion that the drivers were not agents of the firm in relation to cash work. The distinction between telephone bookings and rank journeys was not relevant to the decision in Gibbs. We have found that the telephone bookings were performed by the drivers vicariously fulfilling Starline's obligations because of the contact between the drivers and Starline in relation to those journeys. On that aspect Gibbs is not comparable. In relation to rank journeys we have found that the drivers were not agents as did the tribunal in Gibbs, but our reasons for doing so derive from the particular circumstances of this case rather than the comparison with the fact pattern in Gibbs.
36. Our apparent departure from Hamiltax gives us more concern than our departure from Gibbs because of the greater factual similarity with Hamiltax. However, the requirement that we start with the contract between the parties (which is made clear in Kieran Mullin and Spearmint Rhino) means that our journey was differently lit from that on which the tribunal travelled in Hamiltax.

Conclusion

37. We dismiss this appeal in part only. So far as concerns the consideration for the telephone bookings we find that Starline made a supply of procuring a taxi journey in return for the whole of the consideration and is therefore liable for VAT on that amount. So far as concerns the consideration for the rank journeys we find that the drivers made the supply of a taxi journey for this consideration and that the relevant percentage (62% etc) of that amount was part of the consideration paid by the driver to Starline for the use of the taxi.
38. Our decision was unanimous.
39. We were asked by the parties to defer a decision on costs until after we produced our decision in principle. The issue of costs will be remitted to the chairman sitting alone if the Tribunal so decides.

CHARLES HELLIER

CHAIRMAN

RELEASED: 10 August 2007

LON 2004/1096