Holland andaanother v HM Revenue and Customs
| Jurisdiction | England & Wales |
| Judge | Mr Justice Blackburne |
| Judgment Date | 30 October 2008 |
| Neutral Citation | [2008] EWHC 2621 (Ch) |
| Docket Number | Case No: CH/2007/APP 0663 & 0664 |
| Court | Chancery Division |
| Date | 30 October 2008 |
[2008] EWHC 2621 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Justice Blackburne
Case No: CH/2007/APP 0663 & 0664
Edmund King (instructed by Woodfines) for the Appellants
Sarabjit Singh (instructed by Solicitor for HM Revenue and Customs) for the Respondents
Hearing dates: 12 th, 13 th and 18 th May 2008
Introduction
These are appeals by the taxpayers against two decisions of the Value Added Tax and Duties Tribunal (Sir Stephen Oliver QC, President, and Diana Wilson) released on 28 August 2007. By their decisions the Tribunal ruled that supplies by the appellants to self-employed hairdressers (or stylists) did not include “the leasing or letting of immovable property” and that, even if they did, the supplies were properly to be characterised as single supplies of (putting it shortly) hairdressers' facilities which were standard-rated for VAT purposes.
In fact, the two appeals, which I shall refer to for short as Holland in the case of appeal 0663 and Vigdor in the case of appeal 0664, were heard together with a third (Decision 20323) called Taylor, also concerned with supplies to self-employed hair-stylists and also raising the same issue. In contrast to Holland and Vigdor, the Tribunal ruled in Taylor that the supplies by the taxpayer in that case included a leasing or letting of immovable property and were not to be regarded as a single indivisible economic supply.
At the heart of the first issue was the scope of the exemption from VAT of “the leasing or letting of immovable property” conferred by Article 13B(b) of Council Directive 7/388/EEC (the Sixth Directive) which has since become Article 135(1)(l) of Council Directive 2006/112/EC. The relevant domestic enactment of Article 13B(b) is item 1 of Group 1 of Schedule 9 to the Value Added Tax Act 1994 (“the 1994 Act”) which refers to a “licence to occupy land”. At the heart of the second issue was the treatment for VAT purposes of a supply where there are several elements to the supply: did each element of the overall supply made to the stylists retain its separate VAT treatment or were they to be treated as a single or composite supply and, if the latter, how was the supply to be characterised? These are familiar issues in cases involving stylists carrying on business as self-employed hairdressers in premises and using other services connected with hairdressing supplied to them by the taxpayer. With the exception of Taylor, the taxpayer has failed in every one of the decisions to which my attention was drawn.
The facts in Holland
What follows is taken, with some adaptation, from the Tribunal's decision in Holland. I was also taken to the underlying written form of agreement used in that case.
(a) background
Andrew Holland, the appellant in Holland, was during the period to which the appeal related the sole proprietor of a ladies' hairdressing salon in King's Lynn. He appealed against the decision of HM Customs and Excise (as they then were), dated 27 August 2002, that the supplies of certain services to self-employed stylists working from the salon premises were standard-rated and, accordingly, that he was liable to be registered for VAT. It was common ground before the Tribunal that if the supplies to the stylists were properly standard-rated, Mr Holland should have been registered with effect from 1 June 2002.
The Tribunal heard evidence from Mr Holland and two other stylists who had each carried on a self-employed business at the salon since the early 1990s.
Having leased the premises from his father from the early 1990s (paying £1000 per week for two of the floors), Mr Holland had bought the premises from his father a few years before the Tribunal hearing. As I understood it two of the floors (the ground and first floors) were occupied by stylists and the third, on the second floor, was used by Mr Holland for training. During the relevant period there were at the premises seven stylists, including Mr Holland, and four “juniors” who acted as assistants to the stylists.
(b) the written agreement.
During the relevant period each stylist entered into a written agreement with Mr Holland which was in a form produced by the National Hairdressers' Federation. In the copy of the agreement which was in evidence before the Tribunal Mr Holland was described as “the Owner” and the stylist, in this case a Ms Claire Thorpe (or Steele as she later became), was described as “the Independent Contractor” or “the Licensee” for short.
Clause 2 of the agreement (headed “The Intent and General Principles”) stated, by clause 2.1.1, that each party was to have “ultimate command and authority over all aspects of their respective business or enterprise”, by clause 2.2.1, that the licensee should “enjoy, without let or hindrance, possession of the designated land and to have right of passage to that land” and, by clause 2.2.3, that each party was to have “equal rights to enter onto, and undertake lawful activity from that land which comprises the common parts in mutual harmony and compatibility and to use such common area in the furtherance of their business”. Clause 2.3 stated that nothing in the agreement should be deemed to constitute a partnership between owner and licensee or a joint venture or agency between them. By clause 3.2 the licensee warranted to “occupy and use the Salon for the purpose of conducting his own independent hairdressing business, including activities normally ancillary to hairdressing, and is acting on his own behalf…”.
Clauses 4 and 5 were headed “Licence to Occupy Land”. Clause 4.1 provided that the stylist “may occupy the property described in the schedule (“the Designated Area”) with the benefit of the facilities and services for the purposes of conducting his own hairdressing business and activities normally ancillary thereto…” from the date of the agreement until terminated in accordance with the provisions therein contained. Clause 8 provided that the agreement was to continue until terminated by either party giving notice (either three months or not less than 21 days in the case of a breach of the agreement) or in other stated events (for example, death or the onset of an insolvency proceeding). The “Designated Area” was described in the schedule to the agreement as an eight square metre area “etched” (I think that the reference in the schedule should be to “edged”) in red on an annexed plan. The Tribunal was not supplied with a plan so edged. By reference to the plan attached to Mrs Steele's agreement the designated area allocated to her is shown as including two mirrors against the wall on the left of the ground floor and two chairs. In all, three such areas were shown on the plan with Mr Holland's nearest to the entrance to the salon. It showed a broken line between his area and Mrs Steele's, stretching out from the wall bearing the mirrors towards the centre of the room, and another such line between Mrs Steele's designated area and the third such area in the room. There was no line to mark the extremities of the three areas opposite the side formed by the wall. The plan also showed a sofa for waiting clients about four feet from the end of the broken line between Mrs Steele's area and the third area. Towards the back of the ground floor the plan showed the room to narrow with a step up, at the edge of the third area, into a smaller area within which were three “backwashes” (basins for washing clients' hair) marked 1 to 3 with storage cupboards on the opposite wall.
Each stylist agreed to pay two amounts to Mr Holland: a “licence fee” and a “service charge”. In the case of the Mrs Steele's agreement, clause 4.2 of the agreement provided that she should pay a licence fee of £150 per week with six-monthly reviews to reflect changes in the Retail Prices Index.
By clause 4.4 it was provided as follows:
“4.4.1 This Licence is granted to provide the Licensee with an area of land for the conduct of business, either in part or in total in the Salon owned and operated by the Owner and is intended to create an exempt licence to occupy as defined by VAT legislation.
4.4.2 This Licence does not give the Licensee exclusive possession of the Designated Area or the Salon and the Owner is entitled to enter and use the Designated Area at any time provided that such entry or use shall not in any way hinder or obstruct the Licensee's business activity in accordance with the terms hereinafter appearing.
4.4.3 This Licence is personal to the Licensee and it cannot be transferred or assigned. The Licensee is not entitled to permit anyone, other than those employed by or having business with the Licensee, to have access to the Designated Area.”
Clause 4.5.1 obliged the licensee to use the designated area only for the purpose of his hairdressing business including those activities normally ancillary to hairdressing. By clause 4.5.7 the licensee agreed “not to interfere in or obstruct the running of the Owner's own business from the Salon nor that of any other independent contractor permitted by the Owner to carry on business from the Salon”.
Clause 4.6.1 obliged Mr Holland, as “Owner”, to pay all rates, property taxes, property maintenance, decoration and insurance (not including professional negligence insurance of the stylist). Other obligations owed to the licensee included:
“4.6.2 To allow the Licensee access to all other parts of the Salon not forming part of the Designated Area required for the purpose of providing his clients with the services of a hairdressing business, including those services...
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