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Steve Allen, Director of VAT Advisers Ltd, highlights a selection of recent VAT case decisions.

Tribunal says Sale of Cold Sandwiches Next to Shared Seats was Not 'Catering'

The case concerned the Appellant’s appeal against a ruling by HMRC that cold food sold by the Appellant should be standard-rated.

The disputed supplies were the ‘made to order’ cold sandwiches sold from Subway kiosks in three different food courts. The Appellant argued that the seating areas next to the kiosks were not ‘premises’ from which the food was supplied, because the kiosks shared those seating areas with other food outlets in the food court, and had no control over them.  The Appellant further argued that the supplies of cold food were not supplied ‘for consumption on the premises on which they were supplied’, and that because they were not otherwise ‘in the course of catering’, and were clearly supplies of food for human consumption, they had to be zero-rated.

In reaching its decision, the Tribunal held that,

‘The facts of this case indicate perfectly clearly that the kiosks are not in any common sense terms the same premises as the places where the food is consumed. No food could be consumed in the kiosks, and in respect of none of the three outlets does the lease even purport to give any rights of occupation or even use over the seated areas to the appellant.’ 

The supplies of cold food from the three kiosks were correctly zero-rated because they did not fall under the term ‘catering.’ The Appellant’s appeal was therefore allowed.

Made to Order Ltd (VTD 20,959)

Door Entry Charge means Sauna Business Acted as Principal for VAT Purposes

The Appellant operated a sauna business in Edinburgh, and following a VAT assurance visit, had been assessed by HMRC for the full consideration paid at the door, as well money paid by the clients direct to the hostesses.

Previously, the VAT Tribunal had found for the Appellant on monies paid to hostesses, holding that they were self-employed, and the money received by them directly from customers was not the Appellant’s income.  However, regarding the money collected on entry, the Appellant kept a fixed £5 for itself, and also retained 50% of the remaining consideration, in respect of the supply of the room and facilities (the other 50% being passed onto the hostesses).  HMRC had argued that the Appellant was required to account for VAT on the full value, not just the £5 and 50% share. The Tribunal found the facts of the case unique, but was of the view that the service provided was one of entry, and VAT was due on the full consideration received at the door. However, HMRC’s assessment had included an estimate of the value of monies passing between the customers and hostesses, which had been calculated by scrutinising a website called ‘Punternet’. The Tribunal found the assessment calculation to be flawed, and dismissed the appeal, directing HMRC to recalculate the assessment.  The Appellant appealed against the Tribunal’s finding that VAT was due on the full consideration paid at the door.

The Court of Session agreed with the Tribunal that the Appellant’s business structure was different to that of previous self-employed stylists or ‘Spearmint Rhino’ cases.  The Court also agreed that the entry fee was consideration for a supply by the Appellant to the customer of allowing entry and use of the facilities. The subdivision of money was irrelevant, and there was no suggestion that the collection of the entry fee was done as an agent.

Joppa Enterprises Limited v HMRC, Court of Session (CSIH 17), 6 March 2009

Tribunal says Account Work Not Supplied by Taxi Drivers

This dispute concerned whether supplies of taxi services to account customers were being made by the individual drivers or by the Appellant acting as principal.

The taxi business was acquired in 2006, but in June 2007, the Appellant company ceased trading as a taxi business and commenced trading as a vehicle leasing company, supplying vehicles to be used as taxi cabs. The drivers were self-employed and had previously entered into a Principal Statement of Terms and Conditions under the previous ownership. These agreements were not retracted, but the Appellant argued they were unenforceable. As part of the business transfer arrangement, the Appellant had inherited a block of account customers. Information on these account journeys was collated and invoices sent out to the customer on a monthly basis, with the Appellant retaining 10% of the invoice value (the balance being passed on to the drivers). The Appellant argued that it should be treated as an agent for both cash and account customers. HMRC argued there were significant differences between the two types of work, and relied on cases such as ‘Crossleys Private Hire Cars’ which found the taxi firm acted as principal because it bore the risk of bad debts, fixed the fares, and kept detailed records of the work carried out.

The Tribunal agreed with HMRC that the Appellant was acting as principal in respect of the account customers. The Chairman relied on the ‘Carless’ High Court decision, which warned Tribunals not to conduct an elaborate analysis, and that the decision to be made ‘was essentially one of fact’. In this case, the Chairman said the issue was a straightforward question of asking who made the supply of taxi services to account customers, which he found to be the Appellant.

Bath Taxis (UK) Limited (VTD 20,974)