Byrom and Others (trading as Salon 24) v HM Revenue and Customs
| Jurisdiction | England & Wales |
| Judge | THE HONOURABLE MR JUSTICE WARREN |
| Judgment Date | 07 February 2006 |
| Neutral Citation | [2006] EWHC 111 (Ch) |
| Docket Number | Case No: CH/2005/APP/662&CH/2005/APP/706 |
| Court | Chancery Division |
| Date | 07 February 2006 |
[2006] EWHC 111 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
ON APPEAL FROM THE VAT & DUTIES TRIBUNAL
Royal Courts of Justice
Strand, London, WC2A 2LL
The Honourable Mr Justice Warren
Case No: CH/2005/APP/662&CH/2005/APP/706
Richard Barlow (instructed by Messrs JDR Watkins) for the Appellants
Valentina Sloane (instructed by The Commissioners of HM Revenue & Customs) for the Respondents
Hearing dates: 18th January 2006
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
Mr Justice Warren
Introduction
This is an appeal by Mrs Kane, Mr Kane (her former husband) and a Mr Byrom (trading in partnership as Salon 24) from a decision dated 26 July 2005 ("the Decision") of the VAT & Duties Tribunal (David Demack and Alban Holden) sitting in the Manchester Tribunal Centre. The Tribunal dismissed the appellants' appeal, holding that the supplies by them were not of licences to occupy land (which would be exempt) but were supplies of the various facilities which they provided in the course of their business and to which the occupation licences were merely incidental.
Salon 24 own or lease what has been referred to as a massage parlour from which self-employed ladies, according to the Tribunal "euphemistically described as masseuses", offer their services to their clients. The primary findings of the Tribunal are not lengthy and are to be found firstly in paragraphs 3 to 13 of the Decision. So far as they are material, I set them out in the following paragraphs.
The facts
Salon 24 trade as a massage parlour. The services their masseuses provide are of a different nature from pure massage. The services, if not those of prostitution, are akin to it.
The premises include on the ground floor: toilet facilities, a kitchen, a day room or lounge for use by masseuses awaiting customers, a changing room for masseuses, a shower room (containing a washing machine and dryer) and a seating area for customers awaiting masseuses' services; and on the first floor: four (until June 2002 three) rooms in which masseuses entertain their customers, a toilet and an additional room for use by masseuses and their clients (referred to as the "fetish room") about which the Tribunal received no further information and found it unnecessary to enquire about its use.
Each of the four (three) first floor rooms is sparsely furnished by Salon 24 with a double bed, a chair and a television set for playing video recordings. Salon 24 provide the basic bed linen and towels. Any other items provided to or for use by customers are supplied by the individual masseuses.
Studio 24 entered into a written contract with masseuses wishing to offer massage services. The Tribunal set out the terms of the contract which provided in essence for the following:
a. The rent to the masseuse of a room on the day or days chosen by her.
b. The current rate was stated to be £110 per day which had to be paid in advance on the day of hire of the room.
c. The rent paid included costs "towards the use of our laundry facilities, charges to ourselves from Roynet for credit card payment by your clients and advertising".
d. Upon payment of the rent, the masseuse was to be allocated a room solely for her use during the day, opening hours being 10am to 10pm 7 days per week with possible closure on bank holidays".
The Tribunal held that such services were indeed provided on the terms mentioned but that the list of services provided was not comprehensive. The salon's opening hours were determined by Salon 24. The masseuses are self-employed, as large notices found throughout the premises confirm which notices included advice that "..enquiries with regard to quality of service or price should be directed to your masseuse" and "Any enquiries regarding the premises, should be directed to Salon 24". I observe that this does not necessarily reflect precisely the respective provisions which Salon 24 and the masseuses make for the satisfaction of customers. For instance, a complaint about a bed or bed linen might be seen by a customer as properly directed at the masseuse rather than Salon 24 notwithstanding that it is the latter who have provided them.
If not all the rooms are occupied on a particular day, Mrs Kane, as receptionist, or another receptionist, will contact regular masseuses to see whether they are prepared to fill any vacancy. If so, they may be offered a reduced daily rental.
Salon 24 advertise the service of the masseuses in the Manchester Evening News. The advertisement indicates that private parking is available and that all major credit cards are welcome. The Tribunal found that Salon 24 did in fact provide parking facilities. It also found that the services of the masseuses were also advertised on the salon's website which the masseuses established and which they continue to operate.
Salon 24 does not operate an appointments system, customers being expected to accept any masseuse who is available on arrival at the salon. It is not explained how the telephone number in the advertisement in the Manchester Evening News is used by customers in the absence of an appointments system, but one can speculate that a caller would be able to find out rates and availability; and a regular customer could no doubt discover whether a particular masseuse would be available if he were to visit at a particular time.
On a customer entering the salon, he is introduced to a masseuse. He then pays £40 to Salon 24, which may be paid in cash or by credit card. Some 50% of customers pay by credit card. It will be remembered that the contract between Salon 24 and the masseuse provides that her daily charge of £110 includes charges to Salon 24 by Roynet for the provision of credit card facilities.
The customer then negotiates a separate fee with his masseuse for whatever services he requires. This is over and above the £40 which I have referred to which is itself a fee to the masseuse and is not kept by Salon 24. The fee is collected by the masseuse and is placed in a security box which each masseuse has and which is held by Salon 24 for security purposes.
If the customer wishes to use the fetish room, he is required to pay an additional fee to Salon 24 of £20. The Tribunal said nothing about payment by the customer to the masseuse for services provided in the fetish room but that, no doubt, was a matter between the masseuse and the customer pursuant to the negotiations mentioned at paragraph 12 above.
Salon 24 are responsible for security of the premises and have CCTV as part of their security system. They are also responsible for cleaning and maintaining the premises and for their heating and lighting. The Tribunal also held that Salon 24 "provide telephone services, pay the business rates for the premises, and presumably have the usual form of insurance cover of business premises". It is entirely unclear what is meant by "telephone services". There is, as already mentioned, no appointments system; nor is it suggested that masseuses could make lengthy long-distance calls at the expense of Salon 24.
Salon 24 does not provide a laundry service, although, as already stated, it is responsible for providing basic linen and towels. It is not of relevance, I consider, whether the laundry relevant to that provision is carried out on the premises or not. Salon 24 does, however, allow the masseuse to use the washing machine and drier on the ground floor. On occasions, the receptionist may load and switch on the machines for a masseuse, but that is not part of the contract between Salon 24 and a masseuse. Salon 24 provides 6 lockers which 6 regular masseuses use for storage purposes.
Following on from those findings of fact (and up to paragraph 13 of the Decision there are no other relevant findings of fact), the Tribunal went on to identify the relevant legislation. Then, at paragraph 16, commences a section of the Decision headed "Submission and conclusion". The authorities are considered in paragraphs 16 to 18. In paragraph 20, the Tribunal say this:
"20. The Appellants' case depends on our accepting that, even with an exclusive licence to occupy a room, a masseuse could realistically be regarded as carrying on her business within that room. In our judgment, she could not reasonably be so regarded. Mrs Kane's evidence made it plain to us that a masseuse does not carry on a business solely with the room allocated to her. For instance, the licence makes no provision for a masseuse or her customers to gain access to her room from the street, but, even it if did, or it were to be implied, it is clear that she carries out only a small part of her business within the room. And whilst it might be possible for her to dispense with the Appellants' security services and cash handling facilities, for safety reasons they, too are essential. We accept that use of lockers, and the day room may not be absolutely necessary, but they are ancillary matters that form part of the total package."
For completeness I set out at this point paragraphs 21 to 24 of the Decision:
"21. Further, whilst the licence does provide for laundry facilities, Roynets' card handling arrangements and advertising, it does not include any facility for telephone answering, reception or customers, the waiting and other arrangement for customers both before and after receipt of a masseuse's services, and car parking, all of which are essential elements of a masseuse's business. (For the sake of clarity, we should say that we do not accept that the supplies of laundry facilities, card...
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