Joppa Enterprises Limited V. A Decivision Of The Vat Tribunal Sitting On Edinburgh Issued On 30th May 2007 And Communicated To The Appellant On 31 May 2007
| Jurisdiction | Scotland |
| Judge | Lady Paton,Lord McEwan,Lord Hardie |
| Judgment Date | 06 March 2009 |
| Neutral Citation | [2009] CSIH 17 |
| Court | Court of Session |
| Published date | 06 March 2009 |
| Docket Number | XA99/07 |
| Date | 06 March 2009 |
| EXTRA DIVISION, INNER HOUSE, COURT OF SESSION | |
| Lady Paton Lord Hardie Lord McEwan | [2009] CSIH 17 XA99/07 OPINION OF THE COURT delivered by LADY PATON in APPEAL under section 11 of the Tribunals and Inquiries Act 1992 by JOPPA ENTERPRISES LIMITED Appellant; against A decision of the VAT tribunal sitting at Edinburgh issued on 30 May 2007 and communicated to the appellant on 31 May 2007 _______________ |
Appellant: Logan, Advocate; R.S.C. Solicitors
Respondents: Ghosh, Advocate; Shepherd & Wedderburn LLP
6 March 2009 Introduction[1] The appellant company runs a sauna in Edinburgh. Various services are provided, including massage. The establishment has police approval and a licence from the City Council. The respondents are the Commissioners for Her Majesty's Revenue and Customs. The issue in this appeal is whether the whole of the door money generated in the course of the sauna business should be aggregated to the appellant's income and charged to Value Added Tax (VAT). The period in question is September 2002 until June 2005.
The legislation
[2] Section 1 of the Value Added Tax Act 1994 provides that VAT is charged on a supply of goods or services in the course of a business by a person whose turnover is large enough for him (or it) to be registered for VAT. The VAT ("output" tax) is the liability of the person who makes the supply, and the tax is payable by the supplier to Customs and Excise. By sections 2(1)(a) and 19, the VAT payable by the supplier is normally charged on the consideration for the supply. The output tax may be reduced by input tax, namely VAT charged to the supplier by third parties.
[3] During the relevant period (September 2002 until June 2005) a customer entering the sauna was generally greeted at reception by Ian or Charles Haig, acting on behalf of the appellant. There, an entry fee was charged, calculated on a sliding scale related to the length of time that the customer wished to spend with a hostess in a private room. The charges were £20 for 30 minutes in the room; £25 for 45 minutes, and £35 for 60 minutes. Without payment of that entry fee, the customer could not gain admission and enjoy the facilities. Once inside, the customer was entitled to saunas, showers, non-alcoholic refreshments, television, newspapers, the company of a hostess during a "sit-down" (usually one hour of her company in the general lounge area) and also the company of a hostess in a private room containing inter alia a bed, mirrors, and spa-bath. The hostess charged a separate fee for the sit-down, and the customer gave her the money. In relation to the private room, any additional services there offered to the customer by the hostess were negotiated within the room and were paid for by the customer directly to the hostess. It was possible to book a particular hostess in advance of arriving at the sauna.
[4] At a hearing before the VAT tribunal in April 2007, evidence was led and submissions made. The main issue in contention at that stage was whether the hostesses were employees or agents of the appellant, or whether they were self-employed. By their decision dated 30 May 2007, the tribunal held that the hostesses were self-employed, and that any money received by them directly from the customer was income attributable to them for services rendered direct to the customer. That income was not aggregable to the appellant's income chargeable to VAT. Those findings are not contested in the present appeal.
[5] What is in dispute is the income derived from the entry fee or door charge. The money generated from the entry fees was kept at reception for a period. At a convenient time, the money was divided up. Out of each entry fee, £5 was retained by the appellant; one half of the balance was paid to the relevant hostess, and the remaining half retained by the appellant in name of rent owed by the hostess to the appellant for the supply of the room and the supporting facilities. That dividing-up process implemented an agreement reached between the appellant and each hostess, contained in an unsigned document (the "Pool of Girls Agreement") the relevant terms of which were as follows:
"What is expected of Joppa Enterprises Ltd
Provide the premises and accommodation.
Arrange and pay for advertising for new girls for pool.
Receive clients at the door, collect the split entrance and massage fee and pass the customer through.
Explain the current charges set at the door and that these are subject to change by mutual arrangement between the pool and the company ..."
[6] The customers were unaware of those contractual arrangements between the appellant and the hostesses.
[7] The appellant paid VAT on the £5 retained from the entry fee, and also on the one half balance retained for the supply to the hostess of the room and supporting facilities.
The tribunal's decision so far as relating to the income generated at the door[8] In addition to finding that the hostesses were self-employed, the VAT tribunal made the following findings in respect of the income generated by the door entry charge:
"It is the view of the tribunal that [the entry fee] was payment for a service provided or facilitated by the appellant. Its precise sub-division is not related to particular services or known to the payer of the consideration. The service provided to the client was entry to the premises and the opportunity to avail himself of the facilities therein whatever they may be provided by the women present there. That in the view of the tribunal is the supply and it is taxable...
The facts in the present case are unique to it and we only note that, had the contract between the establishment and the women, the Pool of Girls Agreement, been differently framed, there might have been an argument that the reasoning in Spearmint Rhino Ventures (UK) Ltd ... by Mann J would have required to have been given particular consideration. In the present case however we do not have a clear contract upon which reliance can be placed to exclude consideration of the surrounding circumstances. The circumstances here are not contractually so clear and specific as to exclude the normal inference that what the client paid at the door was payment for a supply of services and subject to VAT.
Decision
The tribunal's decision is that though there has not been a full account of tax due, the assessment is flawed and cannot stand. The tribunal is unable to ascertain on the information before it, what the correct amount of tax should have been, and accordingly give the respondent an opportunity to formulate what tax is said to be due on the full door entry fees collected by the appellant which, if it cannot be agreed, can be returned to the tribunal for a decision."
[9] The grounds of appeal argued before this court were as follows:
"...In terms of [the decision of the VAT tribunal dated 30 May 2007] the tribunal allowed the appellant's appeal and quashed the assessment against which the appeal was made, but found that the appellants ought to have accounted for the full amount of the door money received at [the]...
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