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VAT Voice by Steve Allen

Steve Allen, Director of VAT Solutions (UK) Ltd, highlights a recent High Court VAT ruling concerning room hire charges.The High Court has upheld the VAT Tribunal’s decision against the taxpayer in an appeal concerning the VAT liability of charges made to self-employed masseuses who operated from its premises.

Background

The appellant makes a daily charge to the masseuses of £110, described as ‘rent for hire of the room and as including costs towards the use of laundry facilities, charges to ourselves for credit card processing and advertising’. The Tribunal also identified other services provided to the masseuses in the form of receptionist services, provision of security systems, provision of car parking facilities for customers and the use of a day room. Customers visiting the salon pay a £40 fee to the masseuses for a massage and then negotiate a fee with the self-employed masseuse for “additional” services required.

Point at issue

The dispute was whether or not the nature of the supply by the appellant to the masseuses was one of the letting of a room for exclusive occupation. The VAT Tribunal had found in favour of HMRC on the grounds that there was a single supply, the dominant part of which was the supply of services to which an incidental part is the supply of a room. The Hon Mr Justice Warren agreed that there was a single supply but disagreed the dominant supply reasoning stating that this 'conclusion.....is one which flies in the face of reason and is simply not a conclusion which can, in my judgment, properly be drawn from the evidence. Even if [the supply of the room] was not the main element (which I think it probably was) it was certainly not an element incidental to the other services in the overall package'.

Decision

Justice Warren took a different approach to the analysis of the single supply and concluded 'it is then necessary to categorise the resulting single supply viewed as a complex of elements (the provision of the licence and of the various services). In my judgment, the over-arching single supply is not to be treated as a supply of a licence to occupy land. The description which reflects economic and social reality is a supply of massage parlour services, one element of which is the provision of the room. That, in my judgment, is the correct conclusion even if, which for my part I think probably is the case, the provision of the room was, to the masseuse, the single most important element of the overall supply and, indeed, one predominating over the other elements taken together. This is a case where the tax treatment of the supply is self- evident once it is established that the other service elements are not ancillary to the provision of the licence.' The judge found further support for this conclusion in the ECJ judgments of Blasi and Temco on the nature of a leasing or letting of immovable property. The appeal was subsequently dismissed, albeit on different reasoning to that of the Tribunal.

Byrom, Kane & Kane t/a ‘Salon 24’, High Court Chancery Division, 7 February 2006

(P.S. This was our own case, so we can advise on the implications for beauty salons, sunbed rooms etc.!)

April 2006

Steve Allen
Director, VAT Solutions (UK) Ltd
Email: steveallen@vatsolutions-uk.com

VAT Solutions (UK) Ltd
1 Dundonald Avenue
Stockton Heath
Warrington
WA4 6JT

(T) 01925 212244
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(W) www.vatsolutions-uk.com

VAT Solutions (UK) Limited is an established independent firm of Chartered Tax Advisers, formed by Andrew Needham and Steve Allen. The company has a cross-section of clients from multi-national companies through to medium-sized and numerous smaller regional firms of accountants and solicitors. They produce a regular publication 'VAT Voice', which can be downloaded directly from the Internet via their website: