United Kingdom VAT & Duties Tribunals Decisions

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Cite as: [2009] UKVAT V20947

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Westbourne Domestic Care Agency Ltd v Revenue & Customs [2009] UKVAT V20947 (03 February 2009)

20947

REGISTRATION – Compulsory registration – Appellant providing domestic workers – Whether Appellant providing domestic workers as principal or as agent – Appeal against compulsory registration – Appeal dismissed

LONDON TRIBUNAL CENTRE

WESTBOURNE DOMESTIC CARE AGENCY LTD Appellant

and –

THE COMMISSIONERS FOR HER MAJESTY'S REVENUE & CUSTOMS Respondents

Tribunal: SIR STEPHEN OLIVER QC (Chairman)

Sitting in public in London on 28 January 2009

No representation for the Appellant

Tony Hopkinson of HMRC for the Respondents

© CROWN COPYRIGHT 2009

DECISION

This is an appeal against the decision by HMRC to compulsorily register Westbourne Domestic Care Agency ("Westbourne") for VAT from 1 October 2003 and the consequent assessment raised for the period 1 October 2003 to 31 December 2006.

The hearing notice was sent out on 22 October 2008 to both parties. At the time Westbourne were represented by a firm of accountants in London. The hearing notice included a request to file a list of documents on receipt of the letter and to exchange witness statements within 30 days of receipt of the letter. HMRC served their witness statement and documents and lodged it with the Tribunal on 18 November 2008. Westbourne served none.

On 27 January 2009 HMRC sent a copy of their skeleton argument to Westbourne, it appearing that Westbourne was no longer represented by the accountants. A few minutes later this was followed up by a telephone call from HMRC's solicitors office to Westbourne. The person speaking for Westbourne said that Westbourne had only just been notified of the hearing on 28 January but could not attend. HMRC's note of the telephone call states that the person speaking for Westbourne had said that no attendance would be made because Westbourne could not waste any money on the appeal. When Westbourne were asked to write to the Tribunal to inform it of its intention not to attend and why, the spokesperson for Westbourne said that it would not be writing and that attending the hearing would do no good anyway.

The hearing duly started on 28 January 2009. There was no representative for Westbourne. HMRC made an application that the appeal be struck out in accordance with rule 26(1) of the Value Added Tax Tribunal Rules 1986. I decided that it was just in all the circumstances to look at the evidence produced so far and the correspondence and, in the light of those, to decide what the proper course should be.

I turn now to summarise the apparent background to the decision to compulsorily register Westbourne.

At all material times Westbourne has run a business which has supplied domestic workers into private homes. The domestic workers have been employed members of staff who were employed and paid by Westbourne: they were engaged under employment agreements which in all respects specified their status as employed persons.

The individuals who required the domestic assistance, the clients, have made direct payments to Westbourne.

Westbourne has taken the position that it has at all times acted as agent for the domestic workers and as such has been required to account, for VAT purposes, only for the agency fee charged to each client. HMRC maintains that Westbourne is not an agent but acts as a principal in the supply of workers. On that basis, contend HMRC, the whole of the charge made by Westbourne to the customer is for the supply of its services to the customers; on that basis Westbourne needs to account for tax on the whole charge which, in aggregate, has brought the turnover above the registration threshold.

The general issue, therefore, is whether Westbourne can properly be regarded as acting as agent for the domestic workers and thus only liable for the agency fee charged to the client or, as HMRC contend, whether Westbourne acts as a principal in the supply of workers and that Westbourne needs to account for tax on the whole of the charge.

The fullest account of Westbourne's case available to the Tribunal is set out in a letter from Westbourne's accountants to HMRC dated 28 May 2008. This reads, so far as relevant, as follows:

"Our appeal is on the grounds that the Company should not be compulsorily registered. The reasons for this are

(a) Although the domestic staff were employees as a result of the PAYE legislation which forbids self-employment for agency staff, in practice the Company had little control over the activities of the staff in that (i) the staff agreed their hours and the work that they were expected to do directly with the clients, (ii) no supervision was carried out on the carer's work by the Agency, (iii) no equipment is provided by the Agency and (iv) no cleaning materials are provided by the Agency.

(b) The clients pay an hourly rate to the Agency directly related to the salary costs of the staff.

(c) In addition … the invoice shows a commission element which we believe is our client's turnover.

(d) The method of operation is such that funds from the Company's are separated from the day-to-day expenses of the Company. Invoices when paid are banked into a Client Account out of which the salaries are paid. The Commission element of these invoices are then transferred into an Office Account to meet the expenses of the Company.

(e) Taking all of those factors into consideration we believe the Company's turnover is the commission element only thus taking it below the VAT threshold."

HMRC rely on Article 9 of the Sixth VAT Directive which states that::

"1. "Taxable person" shall mean any person who, independently, carries out in any place any economic activity, whatever the purpose or results of that activity".

HMRC go on to rely on the well known passage of Laws J in C&CE v Reed Personnel Services Ltd [1995] STC 588, where the judge characterise the issue as follows:

"The Commissioners say that on the facts, for the purposes of the 1983 Act, the supplies which Reed makes to the hospitals are supplies of nursing services and thus, as I have already said, exempt supplies under the statute. Reed contends that it merely acts as a recruitment agency: the VAT supplies which it makes to the hospitals are constituted by the service of introducing the nurses and associated obligations which it undertakes (some, perhaps, quite extensive), but do not include the provision of nursing services as such. Such supplies would not be exempt, and so on that basis Reed would be entitled to deduct all associated input tax from its VAT bill. Thus the issue before the Tribunal turned on the question, what was the nature of the supplies made by Reed".

I agree with HMRC that the issue in this case relates to the nature of the supplies made by Westbourne, i.e. whether it supplies services as a principal or as an agent.

The case for HMRC is based on a number of factors. The first of these is that there has been a contract of employment between Westbourne and each of the domestic workers. This appears to have been the situation having regard to the note of an interview conducted between a Miss Reddington of Westbourne and a Miss Dennis also of Westbourne, on the one hand, and representatives for HMRC on the other. In the course of that interview it was said for Westbourne that self-employment was not an option. It was also said that the terms of each member of staff's employment contract provided for fixed working hours, for a salary to be paid on the last Friday of each month and for two weeks notice of termination. The employment agreement also provided that the domestic worker could not without the prior written consent of Westbourne engage in any form of business or employment other than the employment to which the agreement related; the agreement also provided that the domestic worker was prohibited from soliciting any clients or accepting any work from them either during or subsequent to their employment. In the course of the interview it is stated that Westbourne would offer to cover when an employee was unwell or on holiday.

It is not entirely clear from Westbourne's evidence as to how the relevant fees were charged. The letter from the accountants of 3 July 2007 states that all fees paid to Westbourne by the clients are paid into a client's account out of which the wages are paid and only the commission element is transferred into the office account out of which the running expenses of Westbourne are paid. I note, however, that in a letter of 29 June 2006 Westbourne had maintained only that the hourly rate charged by Westbourne was "directly related to" the amount paid by Westbourne to its cleaners, and by letter of 8 September 2006 Westbourne had in fact specified that the amount paid to the domestic worker was shown separately on the invoice.

My attention is also drawn to the Tribunal decision in Clarina Live-in Care Service (1999) VAT Dec 16434. In that case the facts had an apparent similarity to the present although the formal documents had stated that the staff were not employees of the agency. Despite that latter feature, the tribunal found that the agency was acting as principal in the supply of the relevant services. HMRC say that the workers employed by Westbourne are no more "independent entrepreneurs carrying on business on their own account" they were the staff referred to in Clarina

In all those circumstances, it is submitted for HMRC that they were correct to conclude that Westbourne was acting as a principal in the supply of services, and as a result HMRC were correct to compulsorily register Westbourne for VAT and to assess the tax.

I have considered all the evidence available. HMRC's reliance on the points summarised in paragraph 13 above is, in my opinion, well-founded. I acknowledge that Westbourne has not been represented and has not been present to challenge the evidence presented by HMRC or to adduce any of their own evidence. I am however driven to the conclusion that HMRC's case on both points is prima facie correct. I do not, therefore, think that it is appropriate to allow the appeal or any part of it. On that basis the decision to compulsorily register stands and the decision to assess stands likewise.

HMRC have asked for their costs of the hearing on 28 January 2009. I think they are entitled to those costs. Westbourne gave no indication (until the last day) that they would not attend the hearing. HMRC had to prepare their case and to have a witness present at the hearing so that the Tribunal had the full picture. I have determined the amount in respect of costs at £300.

Having regard to the fact that Westbourne were not represented at the present hearing, I think the proper course is to make the following direction:

DIRECTION

UNLESS within 14 days of the release of this Decision Westbourne have notified the Tribunal in writing (and supported by written reasons) that it would be just and equitable in all the circumstances for the Tribunal to re-consider this decision, the Tribunal will treat the appeal as withdrawn for all purposes with the result that the decisions of HMRC to compulsorily register Westbourne and to assess Westbourne stands.

IT IS FURTHER DIRECTED that if it becomes necessary for the Tribunal to have a hearing to review and re-consider the terms of this decision, the Tribunal will do so only if a representative for Westbourne attends the hearing.

IT IS FURTHER DIRECTED that the costs of this hearing (assessed at £300) are to be borne by Westbourne which will pay the same to HMRC within one month of the release of this decision.

SIR STEPHEN OLIVER QC

CHAIRMAN

RELEASED: 3 February 2009

LON 2007/0733