United Kingdom VAT & Duties Tribunals Decisions

You are here: BAILII >> Databases >> United Kingdom VAT & Duties Tribunals Decisions >> Taylor, The Executors of (t/a Anglia Markets & Bantees) v Revenue & Customs [2007] UKVAT V20323 (28 August 2007)
URL: http://www.bailii.org/uk/cases/UKVAT/2007/V20323.html
Cite as: [2007] UKVAT V20323

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

The Executors of M J Taylor & Mrs Pauline Taylor ((t/a Anglia Markets & Bantees) v Revenue & Customs [2007] UKVAT V20323 (28 August 2007)

20323

EXEMPTION – Land – Licence fees – Hairdressing salon – Right to use salon – Licence granted by investment partnership to two stylists – The two stylists ran the salon and employed their own staff – Whether letting or leasing of immoveable property – Yes – EC Sixth Directive Art 13B(b) – Whether single composite supply of salon facilities to the two stylists – No – Appeal allowed

LONDON TRIBUNAL CENTRE

THE EXECUTORS OF M J TAYLOR & MRS PAULINE TAYLOR Appellants

(T/A ANGLIA MARKETS & BANTEES)

and –

THE COMMISSIONERS FOR HER MAJESTY'S REVENUE & CUSTOMS Respondents

Tribunal: SIR STEPHEN OLIVER QC (Chairman)

DIANA WILSON

Sitting in public in London on 25 and 26 June 2007

Edmund King, counsel, for the Appellants

Sarabjit Singh, counsel, instructed by the general counsel and solicitor to HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2007

DECISION

The Appellants, a partnership which at the material time consisted of Mr Michael Taylor (now deceased) and his wife Mrs Pauline Taylor, appeal against a Notice of Assessment dated 6 October 2000 in the sum of £19,208 plus interest. The assessment was raised in respect of two main elements namely a partial exemption adjustment and VAT said to be due on chair rentals in a hair salon. The appeal is concerned only with the latter element of the assessment in the sum of £11,440 plus interest.

The assessments

These have been made for all periods from 8/97 until 8/99. These were made following two visits on 14 and 30 March 2000 by a Customs officer to the address in Clare, Suffolk of the Appellants. The visit report records that only Mr Michael Taylor was seen by the visiting officer.

The Appellants, registered for VAT as a partnership, by Mr Michael Taylor and Mrs Pauline Taylor. Their registration covered two business activities. One was as licensor of land in a pedestrianised street in South Ockenden to market traders. The other was as proprietors of the "Bantees Hairdressing Salon" in Hadleigh, Essex.

The reasons for the assessments

We heard no evidence from the assessing officer (a Mr D W Tatum). The expressed reasons for the decision to assess are contained in a letter from Mr Tatum dated 25 July 2000. This, so far as is relevant, reads as follows:

"I have now received confirmation from my HQ that my original conversations with you in March this year were correct – your income from the supply of chairs in your salon to self-employed stylists is deemed to be a standard rated supply.

The rentals paid by self-employed stylists to a salon owner are consideration for one taxable supply of a package of facilities necessary for carrying out a hairdressing business – the supply of land being provided is subsumed within this single supply. The liability position on chair rentals was announced in VAT Notes 1/96 and Business Brief 13/96 which was sent out to VAT registered traders during early 1996. As you were registered at that time you would have received a copy of the publication and been aware of the liability position. The National Hairdressers Federation also gave the issue was publicity in their journal and their members were regularly updated. Since you are using the NHF Independent Contractor Licence Agreement I assume you are a member.

I consider that you are supplying your self-employed stylists with a package of services and facilities on which land is incidental and that this is a single composite supply of a right to conduct a hairdressing business which is a standard rated supply."

The letter then continues a summary of the calculations of VAT due for each period.

The Customs Statement of Case asserts that on 14 March Mr Tatum "conducted an assurance visit at the salon". Mr Tatum's visit report records that he had visited the Clare address (a registered address) from 1100 to 1300; it makes no reference to any visit to the salon in Hadleigh. We infer that the contrary information in the Statement of Case is wrong. It asserts that Mr Taylor employed four stylists. Where that came from is unknown.

The evidence

The visit report of Mr Tatum was the Customs' only evidence, supported by the letter of 25 July 2000.

Mr Nicholas Taylor, son of the Appellants, attended the hearing and gave evidence. We were provided with two witness statements of Mrs Pauline Taylor dated 15 September 2006 and 9 June 2007. Neither of these witness statements nor their contents were challenged by the Customs.

An agreement headed "National Hairdressers' Federation Independent Contractor Licence Agreement" between Mr Michael Taylor and Mrs Pauline Taylor as owners of the one part and a Mr Tobias Ambrose of the other part dated 9 May 1997 was the only other piece of documentary evidence.

These proceedings

The appeal was lodged in November 2000. On at least six occasions (the last, according to the Tribunal file, being September 2003), the Appellants asked for the appeals to be stoodover pending the outcome of appeals identified as Vigdor and Paul H Hair. Then on four occasions in 2003 to April 2005 the Appellants asked for a standover pending the outcome of another appeal as well. In early 2006 the Appellants asked for a standover pending the outcome of a case identified as Holland. The Customs accepted all these applications without objection. In 2006 the Tribunal summoned a directions hearing. Consequent on that hearing in which directions bringing them on for trial were given, the Customs provided a revised statement of case. The new statement of case, lodged in August 2006, repeated word for word the Customs original statement of facts but developed their arguments beyond those found in their decision letter of 25 July 2000. The long delay in bringing this appeal to a hearing has presented the Tribunal with some difficulty in deciding what weight to give to the very limited evidence produced by both sides. What follows is our best attempt.

The issues

The issues in this case are firstly whether the stylists' occupation of the salon ranked as a leasing or letting of immoveable property for the purposes of Article 13B(b) of the Sixth Directive. If it did, then there was a prima facie exempt supply by the Appellants. The second issue is whether in all the circumstances there was, as the Customs contend, a single composite supply by the Appellants of the right to use the salon facilities as a whole.

The facts

Until 1996 a family company, Niclisoph Ltd, carried on the market stalls licensing operation in South Ockenden and the Bantees Hairdressing Salon. The businesses were then transferred to Mr Michael Taylor and Mrs Pauline Taylor who were registered for VAT as carrying on both activities with effect from March 1996.

Mr Michael Taylor ran the partnership. Mrs Pauline Taylor at no time played a part in its management. Mr Michael Taylor was at all times a paraplegic and wheel-chair bound. He never visited the salon. He kept the books of the partnership business. At regular intervals he received records, including till receipts, from the stylists at the salon. He prepared and sent out invoices to the stylists for the £20 per week licence fees and the service charges (27% of the turnover of each of them). He paid the utility fees and the water and business rates. Maintenance and cleaning were managed by the stylists.

We had no clear idea as to whether the cost of maintenance and repairs of the salon was borne by the partnership (i.e. Mr and Mrs Taylor). We infer that it was.

On rare occasions Nicholas Taylor, their son, visited the salon to check that the premises were in good condition as, he said, "the representative of the landlord". The Appellants, i.e. the partnership, (according to Nicholas Taylor's evidence which we accept) saw the salon as an investment. Our view is that the arrangements between the partners and the two stylists had many of the features of a furnished letting. The difference is that the partners as landlords agreed to pay the utility bills and received a rent that was, in part, a royalty on turnover.

During the period covered by the assessments there were two stylists occupying the salon under contract with the partnership. These were Tobias Ambrose and Sharen Wilkinson. Both were self-employed. They in their turn from time to time employed other stylists and juniors. Tobias Ambrose and Sharen Wilkinson occupied the ground floor of the salon; the first floor was occupied by stylists and juniors employed by them.

The arrangements between the Appellants as landlord and the two stylists (Tobias Ambrose and Sharen Wilkinson) were, according to Mrs Pauline Taylor's statement, embodied in different forms of paperwork. Among these were those drafted and supplied by the National Hairdressers Federation. We were provided with the document dated 9 May 1997; this was signed by one of the partners and by Mr Ambrose. We will summarise its terms after we have found some more facts.

Tobias Ambrose and Sharen Wilkinson used the whole salon. On the ground floor was the reception area and the chairs, mirrors and basins used by both of them. The chairs were all available to both of them and to the employed stylists working for them. No part of the floor space was exclusive to either of them. If they needed any repairs to the premises, e.g. services of a plumber, they paid for it directly and a compensating adjustment was made to the percentage service charges due to the Appellants' partnership. They made their own reception arrangements. They brought their own customers and each had his or her own goodwill. They each set out their own charges. They employed their own juniors. They cleaned the premises themselves or made their own arrangements for this. They provided their own hairdryers and other tools of the hairdressing and styling business. They provided their own stocks of shampoo and oils. They arranged their own personal and business insurance cover.

Regarding the provision of a laundry service for towels etc., it appears that this was the responsibility of the Appellants. How it was arranged we do not know; Mr Nicholas Taylor said that Sharen Wilkinson moaned about it. In the absence of any better evidence we infer that it was funded as an expense of the Appellants' partnership.

Conclusions on the facts and in the absence of the National Hairdressers' Federation Agreement

On the facts so far we would conclude that Tobias Ambrose and Sharen Wilkinson were between them occupying the entire salon as licensees. The licence was terminable by either side, presumably on reasonable notice. The Appellants as partners and as owners had a passive role. They provided the chairs, mirrors and basins and paid the utility charges. But otherwise the business facilities (with the possible exception of the provision of laundered towels) were provided by Tobias Ambrose and Sharen Wilkinson. The constituent parts of the Appellants' supplies were these. First there was the right to exclusive occupation of the salon and its fixtures, such as chairs, basins and mirrors given to Tobias Ambrose and Sharen Wilkinson subject to the right of inspection by the Appellant's agent, e.g Mr Nicholas Taylor. Second, there were the supplies of utilities including hot and cold water at the Appellants' expense. Third, as we understand the position, there was the supply of a laundered towel service. On those facts we see three separate supplies. The supply of the right to occupy the salon was enjoyed concurrently and in the same terms by Tobias Ambrose and Sharen Wilkinson. The criteria laid down by the Europe Court of Justice in Belgian State v Temco Europe SA [2005] STC 1451 point to that supply being a leasing or letting of immoveable property within Article 13B(b). We have the following features in mind:

(i) The two stylists had the right to occupy the salon as if they were owners and to exclude others from the property: see paragraph 19 of the Court's judgment.

(ii) The Appellants' activities were not "industrial and commercial in nature"; they were passive and those activities (i.e. paying for the utilities at the salon and paying for the laundry service) did not add any significant value: see paragraph 20.

(iii) The period of the licence was not fixed at the time when the two stylists were letting the possession; but by mutual agreement it was terminable on notice of one party: see paragraph 22.

(iv) Regarding the right of occupation of each stylist separately, each had to occupy the salon in common with the other: paragraph 24.

(v) The essential object of each contract was to make the salon available to the stylist, in a passive manner, in exchange for a payment linked to the passage of time: paragraph 27.

Thus, if the parties had not decided to adopt the National Hairdressers' Federation Contract, the arrangements between them and the stylists would, to the extent that they related to the rights of access to the salon, have amounted in each period to exempt supplies within Article 13B(b), if not under Item 1 of Group 1 of Schedule 9 to VAT Act 1994.

Did the adoption of the National Hairdressers' Federation Agreement alter the VAT position?

The expressed reason for the decision to assess, as set out in the Customs' letter of 25 July 2000, was in essence that the parties had been using the agreement supplied by the Federation. We now look at the relevant terms of that Agreement. It is between the Appellants, as owner, and Mr Tobias Ambrose. It is dated 9 May 1997.

Clause 4.1 grants to Mr Ambrose a licence to occupy the salon and to use the facilities contained within the seven square metres Designated Area marked in the Plan in the schedule to the Agreement. For those rights Mr Ambrose agrees to pay Licence Fee of £20 per week. The actual arrangement, as explained above, was that the two stylists were to occupy and use the whole salon. This is in line with Clause 4.4.2 which in term states that "the licence does not give the licensee exclusive possession"; and with Clause 5.2 which applies with similar effect.

Clause 4.5.2 requires the licensee to use his best endeavours to promote the business and be open and available for business on a regular and predictable basis. That provision is consistent with the concept of the licensee, alone or with others, actively promoting the business without any participation on the landlord's part; more to the point here, it reflects the arrangement by which the absent landlord provides the space and the fixtures and fittings leaving it to the licensees to maintain and run their own hairdressing and styling salon.

The discharge of rates, property taxes, maintenance and decoration and (structural) insurances are, by Clause 4.6, the responsibility of the landlord (the Appellants). That provision does not, we think, determine the question whether a leasing or letting of immoveable property exists. Clause 4.6.7 requires the landlord "to observe and conform with current health and safety legislation and determine reasonable rules and regulations governing the management, safety and security of the salon and provide these to the licensee". The evidence indicates that this was left to Tobias Ambrose and Sharen Wilkinson. According to Mr Nicholas Taylor's evidence they employed their own stylist and juniors; they agreed between themselves how the space was to be used and "they had to run things themselves". Although Nicholas Taylor was himself quite remote from the salon activities, his was the only evidence and it was not challenged and the Customs had no evidence of their own (except, as already noted, the visit report). There are two factual errors in the Statement of Case. In the first place, as already noted, Mr Tatum did not conduct an assurance visit at the salon. Second, the statement that Mr Michael Taylor had employed four full-time and one part-time stylist in the salon is in direct contradiction to the evidence that we heard.

The facilities and services that Clause 6.3 require the landlord to provide to the licensee are listed in the Schedule to the Agreement. We deal with these separately:

Access to toilet and washroom facilities and the cleaning of the common parts is said to be the landlord's responsibility. Cleaning, said Mr Nicholas Taylor, was in fact done by the stylists.

The reception facilities were said to be the responsibility of the landlord. Those and the telephone were, said Mr Nicholas Taylor, covered by the two stylists.

The towel service, said to be the responsibility of the landlords appears to have been a bone of contention; we accept that there was, to use Mr Nicholas Taylor's phrase, "a system of sorts" and that the eventual responsibility for this lay with the landlord.

"Waste disposal", said to be the responsibility of the landlords was (Mr Nicholas Taylor stated) completely covered by the local refuse service.

The utility bills were, as required, paid at the landlords' expense.

Why it was thought necessary to make use of the National Hairdressers' Federation Agreement in 1997 was not explained. But despite its specific provisions, some of which were at odds with the actual arrangements on the ground, the key fact remains that the Appellants, as landlords, held their interest in the salon as an investment. They kept out of the arena where the business was conducted; they left that to Tobias Ambrose and Sharen Wilkinson. How the space was divided up and used was a matter for those two stylists as licensees. The Appellants' interest was in their income return. Those features and the other specific facts summarised above demonstrate, we think, that the adoption of the National Hairdressers' Federation Agreement did not displace the reality of the arrangements. Tobias Ambrose and Sharen Wilkinson were, in all the periods covered by the assessment, in occupation of the entire salon. The Appellants as landlords were passive investors who on rare occasions exercised their rights of inspection. There was, we think, a leasing or letting of immoveable property in each period covered by the assessment within Article 13B(b).

Single or composite supply

Our findings as to the nature of the arrangements preclude any conclusion that the supplies by the Appellants of the rights of occupation to Tobias Ambrose and Sharen Wilkinson were to be regarded as part of some other single indivisible economic supply. The Appellants as partners never had any hairdressing business operating as a going concern or economic unit to the facilities of which they admitted those two stylists. The facilities that the partners actually contracted to provide were quite insufficient to be regarded as a single economic supply, when coupled with the licences, which "it would be artificial to split" (see Card Protection Plan v Customs and Excise Commissioners (Case C-349/96) [1999] STC 270).

For those reasons we allow the appeal. We direct that the Appellants' reasonable costs of and incidental to the appeal be paid to them by the Customs.

SIR STEPHEN OLIVER QC

CHAIRMAN

RELEASED: 28 August 2007

LON 1999/1240