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United Kingdom VAT & Duties Tribunals Decisions
You are here: BAILII >> Databases >> United Kingdom VAT & Duties Tribunals Decisions >> Chubb Cabs Ltd v Revenue & Customs [2007] UKVAT V20368 (20 September 2007)
URL: http://www.bailii.org/uk/cases/UKVAT/2007/V20368.html
Cite as: [2007] UKVAT V20368
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- This is an appeal against a VAT output tax assessment issued on 15 July 2005 for the total sum of £69,001 covering periods ending July 2003 to April 2005. The appellant trades as Chubb Cabs in Bangor in North Wales and operates both Hackney Carriage and Private Hire vehicles. The appellant employs some drivers and escort staff (who help passengers for example where the local authority pays for journeys by disabled people or children with special needs) and has agreements with self employed drivers.
- The appellant took over the business on or about 5 April 2005 but it was agreed by the parties to this appeal that an existing business had been transferred as a going concern and that liabilities pre-dating 5 April 2005 became the responsibility of the appellant because of section 49 of the VAT Act 1994 and the regulations made under that provision. The parties had agreed a reduced figure for the quantum of the assessment and we are not concerned with any issue as to quantum in this appeal.
- The sole issue that needs to be determined is what is the correct VAT treatment of services rendered to members of the public by self employed drivers who drive vehicles owned, fuelled and maintained by the appellant. The appellant has accounted for VAT on all supplies made to the public by its employed drivers and on all supplies made to account customers (mainly the Local Authority) whether the journeys were undertaken by employed or self employed drivers. The part of the assessment that is in dispute is in respect of customers who do not hold accounts and who are driven by the self employed drivers. We will refer to this as cash work and the majority of it is paid for in actual cash though some cheques and credit card payments are accepted.
- We heard evidence from Mrs Llinos Chubb who is a director of the appellant and Mr Nigel Roberts, a self employed driver, who has worked for the appellant and predecessor businesses for some years. Mr Dennis Eccles, officer, gave evidence for the respondents.
- We find the facts to be as follows.
- The employed drivers do most of the contract work but the self employed drivers also do some of that work. All drivers also do cash work. The appellant owns and operates all the vehicles and maintains them, fuels them and insures them. The drivers do not have the use of the vehicles except when on duty and only for the purpose of the appellant's business. All the vehicles are painted white and have the appellant's name displayed on them and are therefore recognisable as Chubb Cabs' vehicles. The appellant advertises in Yellow Pages and the Phone Book. The appellant operates a radio control room and many customers phone in for a cab. The contract work is mostly of a repetitive nature and can be planned in advance. The Hackney Carriages can pick up from a rank or by plying for hire. The operator tries to allocate work fairly between the drivers though it appears there is no actual system for this and a driver who happens to be in the vicinity of a customer is usually allocated to that journey even if it is not his turn to take a call.
- The appellant operates 24 hours a day seven days a week and a drivers' rota is drawn up to ensure adequate coverage at all times so far as possible. There is no uniform for the drivers. Vehicles are allocated to drivers according to the needs of the business and no driver has a right to claim any particular vehicle. Every journey is recorded and so the Hackney Carriage drivers have to notify the office when they pick up a passenger (this is a legal requirement anyway). Local fares are metered and although the Local Authority only sets a maximum rate, so that a taxi firm could charge less, in practice all the firms in Bangor charge the same rate. Fares for non-local journeys are set by the appellant according to a list but for longer journeys the self employed drivers can negotiate with the passenger and notify the office what has been agreed.
- The self employed drivers can agree or decline to work as they wish though they are expected to notify their availability in advance so that the rota can be drawn up. They are allowed to decline a particular journey or customer. The self employed drivers collect the fares for cash work and record the journeys for contract work and they agree to pay over to the appellant each day all the money taken. The self employed drivers are then paid 33% of the total takings for their journeys each week. The payment is made on the following Monday. Payment for contract work undertaken by the self employed drivers is made on the Monday after the week in which the work is done and this often means that the drivers are paid for contract work before the appellant receives payment from the customer. Although the self employed drivers agree to hand over all the fares to the appellant each day and then to receive 33% back on the following Monday, the appellant does allow some of them to retain the 33% and to hand over only the balance. Mr Roberts said no cash customer had ever avoided payment and he did not know what would happen if one did.
- It is relevant to the issue before us to consider the agreements made between the self employed drivers and the appellant. The agreement is called the 'Self Employed Contract for Services' and although it appears there have been two versions of it we have seen only one and we will refer to the more important of its provisions.
- It begins with recitals in which it is recorded that "The Driver is in business on his own account as an independent driver and has skills and abilities and can offer services which may be of use to [the appellant]" (our emphasis). The recitals then continue: "The business and the driver agree and intend that where the driver agrees to provide services to the business he will do so in accordance with the operative provisions of this contract for service" (our emphasis).
- The operative provisions include, at paragraph 2, agreement by the driver to "provide driving services to the business". Paragraph 12 reads: "Both contractor and driver agree that this is a contract for services essentially in respect of labour only and recognise that vehicles may be sourced and supplied more economically by the business". Although there is a section headed 'Financial Risk' it does not deal with who would suffer any non-payment that might occur. It makes the driver responsible for his own licence and makes it clear that he is not entitled to sick pay or pension contributions. It also makes it clear that he can set his own hours and has no recourse to the appellant if a contract is cancelled (though it is unclear what sort of contract that refers to).
- The driver agrees not to hold himself out as an employee or servant of the appellant and the agreement is specifically stated not to be that of master and servant.
- It is clear that the drivers are intended to be self employed and Mr Cannan did not seek to argue that they were not self employed. However, although it may be a necessary condition that the drivers are self employed before the appellant's argument could succeed, their self employed status by no means establishes that when they carry cash customers those customers are their customers not the customers of the appellant. A person who puts himself under an obligation to a customer to make a supply may well satisfy that obligation by engaging a self employed sub-contractor to carry out the work but in such a case the supply to the customer is still by the principal and the sub-contractor makes supplies to the principal not the customer. Therefore the self employed status of the drivers does not determine the issue in this case.
- We were referred to several authorities. The most recent and the most helpful are Kieran Mullin Ltd –v- Customs and Excise Commissioners [2003] STC 274 and Ringside Refreshments –v- Customs and Excise Commissioners [2004] STC 426 which follows Mullin.
- The Mullin case concerned the question whether self employed hairstylists were supplying hairdressing services to the public or whether the salon owner was making those supplies. Park J held, at paragraphs 32 to 35 of the judgement, that the correct analysis from the VAT point of view depended largely on the relationship between the stylist and the owner of the salon. That was in part because the salon also employed stylists (so that it was making supplies of hairdressing to at least some customers) and the customers would not know whether the person they were dealing with was employed or self employed indeed it might never occur to them to wonder about that. We note that Park J did not say that the question had to be answered exclusively by examining the agreement between the supposed principal and the supposed sub-contractor. In the context of a taxi firm and particularly where the firm has contractual arrangements, or similar, with account customers the terms of those agreements or arrangements will be highly relevant to the question who makes the supply to the account customer as has been illustrated by the recent case of Gemini Cars (Egham) Limited (Decision 20035). Park J also said at paragraph 36 of the judgement that what actually occurs may override any conclusion that would be drawn from examination of the written terms of a contract, which it is well established is always the case where the nature of a supply or the identity of the supplier is in question.
- Park J also pointed out, in paragraph 40(iii) of the judgement, that where the question is whether a stylist supplies a service to the salon or to the customer, the degree of control exercised over the stylist by the salon owner concerning hours of attendance (which he clearly gave only as an example of control) will have little relevance.
- Those principles apply in other contexts as the Ringside case illustrates.
- We will apply those principles in reaching our decision.
- The agreement between the appellant and the self employed drivers is quite explicit about being an agreement that the drivers will supply driving services to the appellant. The two passages emphasised in the quotations from the recitals at paragraph 10 above could not be more clear in that respect. Paragraph 2 of the operative provisions: "The driver agrees to provide driving services to the business ("The Contract")" is equally clear. Unless the agreement had also had provisions making it clear that the recitals and paragraph 2 of the operative provisions were referring to some limited range of services, say driving contract customers, it is difficult to see the agreement as anything other than an agreement by the drivers to drive on behalf of the appellant rather than on their own behalf.
- Mr Cannan also relied upon the fact that paragraph 12 of the operative provisions obliges the drivers to account for and deposit with the appellant all the money taken and then to be paid 33% of it later. He said that showed that the money was the appellant's, reflecting that it had made the supplies, and that the appellant was paying the drivers for services to it rather than that the money represented payment for supplies made by the drivers to the public with the drivers paying 67% of the takings for the use of the car and the radio service. There is a good deal in that argument though in practice some drivers were allowed to retain the 33% before accounting for the takings. We consider that, at least, that provision is more consistent with the supplies to the public being by the appellant rather than by the drivers.
- Mr Grierson argued that the main purpose of the agreement was to establish the employment status of the drivers as being self employed rather than employees of the appellant. He argued that the agreement should not then be used to determine the identity of the supplier of services to the public as that was not its purpose. No doubt the agreement establishes that the drivers are not employees but we do not agree that it then becomes irrelevant for other purposes. The recitals quoted above are the only recitals and although the first one is directed at least partly to the status of the drivers the second one is only consistent with an intention to establish, additionally, that the driver is supplying services to the appellant.
- Mr Cannan pointed out that if the arrangements between the drivers and the appellant had been as the appellant contends then either in the same agreement or a separate agreement it might have been expected that provision would have been made specifically for the appellant's obligations to the drivers in respect of allowing them the use of cars and the radio service. That is because the appellant would then be making supplies to the drivers and it might be expected that the nature and extent of those supplies would be set out in an agreement.
- Mr Grierson argued that if we ignored the recitals and paragraph 2 of the operative provisions the rest of the agreement would stand as simply an agreement about the status of the drivers. We cannot see any reason why we should ignore those provisions.
- He also pointed out that paragraph 27 of the agreement prohibits a driver from representing or holding himself out as a "servant or employee of the business". The status of servant or employee is mainly relevant to issues relating to the law of tort and has little relevance to questions about the identity of a supplier for VAT purposes, as we have pointed out in paragraph 13 above.
- We have no hesitation in holding that, if the agreement represents what actually happened when customers were driven by self employed drivers, the supplies were by the appellant.
- There was little if any evidence that the practice diverged from the terms of the agreement. The agreement is silent about fare levels and drivers have some discretion over fares for long journeys but in practice most fares are at set rates so the setting of fares is neither an indication that the drivers are supplying the customers or that they are supplying the appellant and this fact is neutral. The self employed drivers' hours are at their discretion under the agreement but it does refer to the flexibility being "by prior arrangement" and that is also the practice. Such flexibility is largely an incidence of their being self employed and is logically of little relevance to the issue about who makes the supply to a customer. The drivers can only make such supplies when on duty and the appellant can only use that driver to make those supplies (if that is the correct analysis) when the driver is on duty, so this fact says nothing about who is making the supplies beyond the fact that the drivers are self employed. Bad debts are not a relevant issue.
- We can find no facts that suggest that the practice differs from the agreement in any way that would persuade us that the supplies are made by the self employed drivers to the public rather than by the appellant.
- In the circumstances we hold that the disputed supplies are made by the appellant and dismiss the appeal. We hold that the appellant has been correctly assessed for tax in the sum agreed between the parties.
- Mr Cannan said that if the appeal is dismissed the Commissioners would not seek their costs and we make no order for costs.
20368
VAT – assessment – identity of supplier – taxi company or self employed driver? – taxi company - appeal dismissed.
MANCHESTER TRIBUNAL CENTRE
CHUBB CABS LIMITED
Appellant
HER MAJESTY'S REVENUE AND CUSTOMS Respondents
Tribunal: Richard Barlow (Chairman)
Christine Owen
Sitting in public in Manchester on 10 July 2007.
Mr Jonathan Grierson of counsel for the Appellant instructed by Alan Rashleigh & Co.
Mr Jonathan Cannan of counsel for the Respondents instructed by the solicitor for Her Majesty's Revenue and Customs.
MAN/05/0757