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You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Wiltonpark Ltd & Ors v Revenue & Customs [2016] EWCA Civ 1294 (15 December 2016) URL: https://www.bailii.org/ew/cases/EWCA/Civ/2016/1294.html Cite as: [2017] LLR 413, [2017] STI 32, [2016] EWCA Civ 1294, [2017] BVC 1, [2017] STC 1131 |
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ON APPEAL FROM THE UPPER TRIBUNAL
(TAX AND CHANCERY CHAMBER)
Decision of Mrs Justice Rose
FTC/74/2014
Strand, London, WC2A 2LL |
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B e f o r e :
Lord Justice Floyd
and
Lord Justice David Richards
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(1) Wiltonpark Limited (2) Secrets (Promotions) Limited (3) Secrets (Holborn) Limited (4) Secrets (Euston) Limited (5) Secrets (St Katherine's) Limited |
Appellants |
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- and - |
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The Commissioners for HM Revenue & Customs |
Respondent |
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(instructed by Hill Dickinson LLP) for the Appellants
Hui Ling McCarthy (instructed by The General Counsel and Solicitor for HM Revenue and Customs) for the Respondent
Hearing dates: 5 and 6 October 2016
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Crown Copyright ©
Lord Justice David Richards:
Introduction
The facts
"2. Each of the Appellants operates as a licensed lap dancing or table dancing club in London where drinks and refreshments are served and dancers perform for club patrons. The dancers are self-employed and pay a fee to gain entry to the club each night when they are booked to perform. The entry fee is about £80 though this varies from club to club and may be waived at the discretion of the person in charge of the club on the night. Dancers perform either to the general audience on a stage at the club or for particular customers close to the table where the customers are sitting. The dancers generally do not get paid anything for dances performed on the stage, though customers may give them a tip to show their appreciation. If a patron invites a dancer to perform a dance particularly for him at his table then she expects to be paid a 'gratuity' by the customer. The Secrets companies suggest to patrons that they should pay a gratuity for each dance performed at their table. The gratuity is either £10 or £20 per single music track. The clubs have no knowledge of the precise terms of the dancers' transactions with patrons and do not assist in enforcing payment by patrons.
3. If a customer invites the dancer to join him at his table for any long period of time, it is usual practice for a customer to offer a gratuity for 'table company'. The club suggests that the dancer should receive £250 per hour or part thereof for the time that she is seated with customers at their table. If the customer has agreed to give the dancer a £250 gratuity for table company, the club suggests to the dancer that she includes as many dances as the customer requests during that time.
4. The issue that has generated this dispute arises from the way in which the dancer is paid for some of her work at the club. The customer can give the dancer cash for tips, dances or table company. But often patrons run out of cash before the evening is over and wish to continue to spend money on entertainment and refreshments. The dancers do not themselves have the means to accept credit or debit card payments in return for their work at the club. In order therefore to enable customers to pay for things without cash, Secrets clubs have established what is called 'Secrets money'. At any point in the evening, the patron can use a debit or credit card to purchase from the waiters or bar staff at the club vouchers which constitute Secrets money. Secrets money vouchers are printed on coloured paper and are sequentially numbered. Each voucher has its value printed on it in both words and figures. Presently vouchers are issued in denominations of £10, £20 and £250. In the period covered by the present appeals, each of the Appellant companies issued its own Secrets money and accounted for its issue and redemption, vouchers only being valid in the issuing club. The terms and conditions of issue have varied over time, as has the transferability of vouchers."
"Secrets earn money from operating the Secrets money scheme in two ways. First, when the patron buys Secrets money, he pays an additional 20 per cent over the face value of the vouchers. Thus it costs the patron £120 to buy £100 worth of Secrets money or £300 to buy £250 worth. Secondly, if a dancer accepts money as payment for her work, she can redeem the Secrets money by presenting the vouchers to the club at the end of the evening. When she redeems the vouchers the dancer receives the face value less a commission retained by the club of 20 per cent of the face value of the Secrets money. Thus for every £100 worth of Secrets money vouchers used at the club, Secrets will receive an aggregate commission of £40. The 20 per cent commission on redemption of the voucher back into cash is charged regardless of how the voucher has been acquired by the dancer. Thus there was evidence before the tribunal that dancers redeemed vouchers on behalf of waiters or bar staff who had received them as tips or that they use the vouchers to settle debts between themselves. Also some clubs will allow patrons on occasion to change unused Secrets money back into cash at the end of the evening. In every case, a 20 per cent commission is deducted from the face value of the vouchers on encashment."
The legislation
"the issue, transfer or receipt of, or any dealing with, money, any security for money or any note or order for the payment of money."
"This Group includes any supply by a person carrying on a credit card, charge card or similar payment card operation made in connection with that operation to a person who accepts the card used in the operation when presented to him in payment for goods or services."
The FtT's Decision
"Alternatively, they claim that the economic reality is that the Secrets companies are not dealing with securities for money, but are providing the dancers with a corporate [sic: composite] supply of the opportunity and resources to supply their services to a wider market than would otherwise be available to them, and Secrets money is the means by which they can supply that market. HMRC maintain such a supply may be characterised as performance facilitation services and is taxable."
"Miss McCarthy [counsel for HMRC] observes that it is not HMRC's case that the 20% charged to dancers represents further consideration for the right to enter the clubs, access the facilities and perform to customers in general (i.e the "entry supply" claimed by Secrets). Rather their case is that the 20% charge is consideration for access to a wider market than the dancers would otherwise have – namely the non-cash customer market – and, critically, for facilitating the dancers' exploitation of that market."
"Miss McCarthy submits that Secrets is not merely providing the dancers with redemption or encashment services, it is also providing the dancers with access to the non-cash customer market and the facility to exploit that market because, unlike the arrangement in Kingfisher, the dancers are making their supplies not from their own premises using their own resources, but from Secrets' premises and using its resources. When viewed from this perspective, she claims there is self-evidently a direct link between the 20% charge to the dancers and the package of services supplied by Secrets."
The relevant supply was "one comprising a number of interwoven elements – the overarching supply being one which supplies dancers with greater commercial opportunities and facilitates the dancers' exploitation of those opportunities": see [83].
"Although considered individually, the VAT liability at each step of the process would appear to support the appellant companies' case, in our judgment the various steps which occur with regard to Secrets money cannot be separated in practice. It is plain to us that the Secrets companies' situations are analogous with those considered by the courts in the Faaborg-Gelting and Byron (Salon 24) cases, and lead to the same conclusions as those to which the respective courts in those cases came. We accept the submissions of Miss McCarthy in respect of this aspect of the appeal in their entirety, and hold that there is a single supply of services by the Secrets companies to the dancers which is paid for by means of (1) entrance fees, and (2) the premium in Secrets' money. It follows that we dismiss the appeals."
The UT Decision
"35. HMRC argue that the Tribunal was right to find that the services provided in return for the 20 per cent commission was a composite supply of services which enable the dancer to gain access to the non-cash market available from the customers the club. They do not go so far as to say that one should treat the entry fee and the 20 per cent commission as one overall consideration for all the facilities provided at the club. That was not their submission before the Tribunal and it was not their primary submission on appeal because they do not need to go that far. However, their alternative submission is that if the Tribunal was right to treat all the money paid by the dancer during the course of the evening as one payment, then clearly the services she receives for that payment from the club are taxable supplies and cannot fall within Item 1."
Accordingly, as an alternative to their primary case, HMRC adopt the alternative basis on which the FtT reached its decision.
"First, it is able to sell goods to a customer who might otherwise not have the cash to purchase goods, or who might not purchase goods from the retailer if the retailer were not part of the scheme. Secondly, the retailer has relative certainty of payment from Provident, rather than having to take the risk of customers' credit, which is almost certain to be significantly less good than that of Provident."
"The next question is, if the services provided go beyond the encashment of the voucher at the end of the evening, what is the precise scope of the composite service? That must be established before one can consider whether the nature of the service is that of an exempt service or not. Mr Hitchmough [counsel for the appellant] argues that if I find that the service provided for the 20% commission is a composite service and not just the pure encashment of the voucher, then the elements of the composite service are no more than were provided by the credit card company in Diners Club or by Provident in Kingfisher."
"However, there is a significant difference between the Secrets voucher scheme and the credit card service or the Provident vouchers service. In a credit card scheme, the retailer provides the goods to the consumer who presents the voucher at the retailer's premises without any further assistance from the issuer of the vouchers or credit card. The retailer is solely responsible for providing the infrastructure, ambiance etc to attract the consumers to come and spend their vouchers in his store. In the present case, the retailer, that is the dancer, cannot provide the service for which she receives the voucher from the patron without the facilities of the club. It is the club which attracts the patrons and provides them and her with the facilities needed for her to perform table dances and offer table company to non-cash customers. For the dancer to make money from the non-cash customers she not only needs Secrets money scheme but the rest of the facilities that are provided by the club to her and to the patrons as the environment in which she can earn money."
"It is necessary then to consider whether these services provided to the dancer by the club when she performs dances etc for non-cash customers should be regarded as distinct and independent supplies or are, together with the encashment of the vouchers at the end of the evening, so closely linked that they form a single and divisible economic supply which it would be artificial to split."
That it was correct to pose this question is clear form the decision of the House of Lords in College of Estate Management v Revenue and Customs Commissioners [2005] UKHL 62, [2005] 1 WLR 3351.
"46. It is true that the dancer does not have to accept Secrets money and that she pays separately for entrance to the club. However it was not suggested that there are many, if any, dancers who refuse to accept Secrets vouchers and it is difficult to see why any dancer would choose to limit her earning ability in this way. Looking at the matter from her point of view, she will only agree to accept Secrets money if she makes use of the rest of the club's facilities to perform dances for non-cash customers. The club provides a bundle of services to the dancer all of which are important for her to be able to make the best use of the facilities at the club to earn her living. It is artificial to split the Secrets vouchers scheme from the other services provided by the club to the dancer to be able to provide dances and table company to non-cash patrons."
"49. I therefore hold that the 20 per cent commission payment charged by the club on redeeming the Secrets money is a payment in return for services which go significantly beyond the simple receipt or dealing with security for money for the purposes of Item 1. The services provided can accurately be described as the provision of the means whereby the dancers can exploit the opportunity to make more supplies to a wider market thereby increasing their turnover by facilitating the dancers' performances to the non-cash customer base."
"I do not consider it is necessary for me to consider whether the tribunal went further than it needed to in referring in paragraph 88 to the supply to the dancers comprising a bundle of services supplied in return for both the entrance fee and the 20 per cent commission. Even if one disregards the entrance fee and looks only at the 20 per cent commission, the services supplied in return for that payment constitute, in economic reality, a taxable and not an exempt supply."
The case for the appellants
The case for HMRC
a) Access to a wider market –i.e the opportunity to make more supplies and thereby increase their turnover…: and
b) The means by which the dancers can exploit that market – i.e the Appellants actively facilitate the dancers' performances to the non-cash customer base because dancers make their supplies to customers not from their own premises using their own facilities but from Secrets' clubs, using Secrets' facilities.
This is a bundle of services going beyond the scope of Item 1 and the overall composite supply is therefore taxable."
Discussion
"Whilst HMRC accepts that the classification of a supply for VAT is ultimately a question of law, this sort of evaluative assessment of the facts that the Appellants seek to challenge is precisely the type of multi-factorial evaluation carried out by specialist tribunals with which non-specialist appellate courts should be slow to intervene."
I do not understand the appellants to take issue with this approach, which is in any event fully supported by statements in a number of leading authorities: see for example Beynon and Partners v Customs and Excise Commissioners [2004] UKHL 53, [2005] 1 WLR 86 at [27] and College of Estate Management v Revenue and Customs Commissioners at [36].
Lord Justice Floyd:
Lord Justice Longmore: