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You are here: BAILII >> Databases >> First-tier Tribunal (Tax) >> Glen-Jones (t/a Sophisticuts) v Revenue & Customs [2011] UKFTT 141 (TC) (25 February 2011) URL: https://www.bailii.org/uk/cases/UKFTT/TC/2011/TC01015.html Cite as: [2011] UKFTT 141 (TC) |
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[2011] UKFTT 141 (TC)
TC01015
Appeal number LON/2005/1054
Exemption – Hairdressing Salon – licence granted to stylists to use basement – whether single exempt supply of licence to occupy land – No – Appeal Dismissed
FIRST-TIER TRIBUNAL
TAX
ANNETTE
GLEN-JONES
t/a SOPHISTICUTS Appellant
- and -
TRIBUNAL: JOHN BROOKS (TRIBUNAL JUDGE)
NORAH CLARKE (MEMBER)
Sitting in public at Eastgate House, Newport Road, Cardiff on 28 January 2011
Brian T Corbould, tax adviser, for the Appellant
Sarabjit Singh, counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs, for the Respondents
© CROWN COPYRIGHT 2011
DECISION
1. Mrs
Annette Glen-Jones
appeals against a decision contained in a letter dated 28
September 2005 from HM Revenue and Customs (“
HMRC
”) that income described as
“rental income” in her accounts is taxable at the standard rate.
2. We
were provided with a bundle of documents which included copies of the
correspondence between the parties and a copy of an ‘Independent Contractor
Licence Agreement’ (the “Licence”), the original of which was made available
for us at the hearing. The Licence was in a form prepared by the National
Hairdressers’ Federation and entered into by Mrs Glen-Jones
and a Mrs Lisa
Hughes (then Evans) on 18 September 2001. We heard from Mrs
Glen-Jones
who gave
oral evidence and we were provided with a witness statement made by Mrs Lisa
Hughes on 2 October 2006 to which, although taken into account, we attach less
weight than would have been the case had Mrs Hughes given oral evidence before
us.
3. From this evidence we make the following findings of fact.
4. Mrs
Glen-Jones
operates a hairdressing salon from premises in Tonypandy under the
name “Sophisticuts”. The premises consists of two floors, a ground floor and a
basement which, although it has a door leading to a lane behind the building,
is generally accessed through a door onto stairs from the ground floor. The basement,
which contains two styling chairs, wash basins, a small kitchen area, a waiting
area for clients and a washing machine and tumble drier, was used by Mrs Lisa
Hughes who operated from there as an independent stylist with her own clientele
under the terms of the Licence paying initially £400 a month which was reduced
to £320 a month on 11 November 2001. Janet Williams, another independent
stylist also operated from the basement under a separate licence granted by Mrs
Glen-Jones
on the same terms as Mrs Hughes. On the ground floor, where Mrs
Glen-Jones
works with her two employees, are two styling chairs, wash basins
and waiting area.
5. Under
the terms of the Licence the parties agreed that it was granted “to provide the
Licensee with a service area in the salon owned and operated by the owner
(clause 4.4.1) and that “the Licence does not give the Licensee exclusive
occupation 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 shall
not in any way hinder or obstruct the Licensee’s business activity in
accordance with the terms hereinafter appearing (clause 4.4.2). In practice,
although Mrs Glen-Jones
did have unrestricted access to the basement, other
than to make use of the washing machine and tumble drier for the purposes of
the ground floor salon whenever necessary, she only went to the basement to
remove rubbish at weekends when it was not used by the stylists.
6. Clause 5.2 provides that “the Licensee is not entitled to exclusive occupation of the Designated Area and confers no tenancy whatsoever upon the Contractor and that possession of the Salon is retained by the Owner until expiration or termination of the Licence Agreement.
7. Although
the “Designated Area” is defined by clause 4.3 as the area of “4 square metres
within the Salon, which is for the purposes of identification only shown and
edged red on the plan” annexed to the Licence Mrs Glen-Jones
explained, and we
accept, that the 4 square metres referred to in the Licence was an area around
the chairs on the ground floor which the stylists were permitted to use, in
addition to the basement, if they had clients who were unable to use the stairs
to the basement.
8. Mrs
Glen-Jones
also, as part of the Licence, provided the stylists with “facilities
and services” (clauses 6.1 and 6.3) and “equipment” (clause 6.5) which according
to the schedule to the Licence included “chairs suitable for a hairdressing
business, mirrors, free standing hot hair dryers, access to toilets and wash
room facilities, reception facilities, reasonable use of the telephone, heating
and lighting, hot and cold water and a laundered towel service” all of which
Mrs
Glen-Jones
agreed was essential for the stylists operation. However, in practice
the stylists generally used their own telephones and their clients would call
them direct to make appointments. The laundry service was the use of the
washing machine and drier in the basement that was also used, without
restriction, by Mrs
Glen-Jones
for the ground floor salon. The “reception
facilities” consist of a desk with a telephone and an appointment book which
was used to record the appointments for clients of both the ground floor salon
and the stylists operating from the basement.
9. The
payments Mrs Glen-Jones
received from the stylists was recorded as “rental
income” in her accounts and treated by her as exempt for VAT purposes. On 12
August 2003 her business received an unannounced VAT visit and in the course of
subsequent enquires by what was then HM Customs and Excise it was ascertained
that Mrs
Glen-Jones
was only trading under the VAT registration threshold if
she had been correct to treat the rental income as exempt. This led to
correspondence between HM Customs and Excise and subsequently (after the
amalgamation with the Inland Revenue)
HMRC
and Mrs
Glen-Jones
’s accountants and
Mr Corbould. During this period the business turnover excluding the rental
income exceeded the registration threshold and Mrs
Glen-Jones
became VAT
registered with effect from 1 February 2004.
10. As it was not
accepted that the rental income should have been treated as exempt Mrs
Glen-Jones
was compulsorily registered on 22 March 2004. A central assessment
in the sum of £33,413 was raised on 23 July 2004 in respect of the period
between 1 November 1999 and 31 May 2004 of which £30,102.56 remains
outstanding. However,
HMRC
have taken no steps to enforce this pending the
outcome of this appeal. In a letter dated 12 July 2004 Mr Corbould, writing on
behalf of Mrs
Glen-Jones
requested that
HMRC
reconsider the decision.
11. There was a
further delay while the parties waited for the decision of VAT and Duties
Tribunal in the cases of Mallinson and Woodbridge and Mould v HMRC
(“Mallinson”).
In a letter dated 26 January 2005, which must have been written later as it
refers to Mallinson, received by
HMRC
on 19 August 2005 Mr Corbould sought
to distinguish Mallinson from the present case. This resulted in further
correspondence leading to the letter from
HMRC
of 28 September 2005 against
which Mrs
Glen-Jones
appealed on 10 October 2005.
12. Section 31 of
the Value Added Tax Act 1994 (“VATA”), provides that a supply of goods or
services is an “exempt supply” if it is of a description specified in schedule
9. Item 1 of Group 1 of schedule 9 VATA specifies as exempt the “grant of
any interest in or right over any licence to occupy land”. The law in
relation to this exemption from VAT was considered by Blackburne J in Holland (trading as The Studio Hair Company) and Vigdor v HMRC
[2009] STC 150.
13.
Like Blackburne J at [49] we are also “content to adopt the following
summary” set out in the decision of Briggs J in HMRC v
Denyer [2008] STC
633 at [19]:
“(1)
Because art 13B(b) [of the Sixth VAT Directive 77/388 now replaced by art
135(1)(l) of Directive 2006/112 EC] confers an exemption from VAT, it must be
strictly construed, but not so strictly as to deprive the exemption of its
intended effect: see Belgium v
Temco Europe SA (Case C-284/03) [2005] STC 1451, [2004] ECR 1-11237, paragraph 17 of the judgment of the Court of
Justice.
(2) In common with other exemptions in art 13, this exemption is to be given a meaning independent of the definitions used in the legal systems of any particular Member State, and it must be derived from an interpretation of the exemption in the light of its context, and of the objectives and the scheme of the Sixth Directive: see Temco at paragraphs 16 and 18.
(3)
The concept of the letting of immovable property within the meaning of art
13B(b) is essentially 'the conferring by a landlord on a tenant, for an agreed
period and in return for payment, of the right to occupy property as if that
person were the owner and to exclude any other person from enjoyment of such a
right': see Temco at paragraph 19 and Sinclair Collis Ltd v
Comrs of
Customs and Excise (Case C-275/01) [2003] STC 898, [2003] ECR 1-5965, paragraph
25.
(4) The letting of immovable property is characteristically 'a relatively passive activity linked simply to the passage of time and not generating any significant added value', to be distinguished from other activities which are either industrial and commercial in nature, or which 'have as their subject matter something which is best understood as the provision of a service rather than simply the making available of property'. See Temco at paragraph 20 and, as an example of the provision of a service, the right to install cigarette machines in commercial premises examined in Sinclair Collis at paragraphs 27-31.
(5) The right to occupy an area or space for a period of time may not be a letting of immovable property if it is merely the means of effecting the supply which is the principal subject matter of the relevant agreement: see Sinclair Collis at paragraph 30.
(6)
There may be a de minimis limitation on the exemption in art 13B(b) such
that, for example, the conferring of a right to the exclusive use of a table in
a Dutch coffee shop, for the purpose of selling narcotics, is inherently
incapable of being a letting of immovable property: see the opinion of Advocate
General Fennelly in Staatssecretaris van Financien v
Coffeeshop Siberie vof
(Case C-158/98) [1999] STC 742, [1999] ECR I-3971, paragraph 36, applied by
Lord Slynn in Customs and Excise Comrs
v
Sinclair Collis Ltd [2001] UKHL 30 at [15], [2001] STC 989 at [15] in the House of Lords.
(7) An agreement may fall short of being a letting of immovable property if, on analysis, it confers merely a licence to use rather than to occupy land: see Sinclair Collis per Lord Nicholls at [35].
(8) An agreement is not disabled from being a letting of immovable property merely because the grantee's exclusive use is subject to conditions (such as a landlord's right to enter and inspect), or because it includes the right to use parts of the landlord's property in common with other occupiers: see Temco at paragraph 24.”
14. For Mrs
Glen-Jones
, Mr Corbould submitted that the present case “stands on all fours”
with the decision of the VAT and Duties Tribunal in the case of the
Executors of M J Taylor & Mrs Pauline Taylor ((t/a Anglia Markets &
Bantees)
v HMRC
[2007] UKVAT V20323 (“Taylor”) and as such, was an
exempt supply of a licence to occupy land.
15. He contended
that the basement where the self-employed stylists worked was independent from
Mrs Glen-Jones
’s salon and that the joint use by the stylists and Mrs
Glen-Jones
of the appointment book was “superficial”. With regard to the
telephone Mr Corbould argued that it was rarely used by the stylists who took
bookings and used their own telephones. He accepted that Mrs
Glen-Jones
did use
the washing machine in the basement and carried rubbish from the basement but
that her use would not interfere with the business of the stylists and compared
it to a landlord’s right to inspect.
16. Mr Singh, for
HMRC
, relied on two decisions of the High Court,
HMRC v
Denyer [2008]
STC 633 (“Denyer”) and Holland (trading as The Studio Hair
Company) and Vigdor
v HMRC
[2009] STC 150 (“Holland”) submitting
that their application to this case was sufficient “to dispose of the present
appeal”. In addition he contended that the basement was not an independent
entity from the ground floor and drew our attention to the combined appointment
book and shared telephone.
17. However, even if
the basement was completely independent from the ground floor Mr Singh
submitted it would not be an exempt supply of a licence to occupy land as it
was not exclusively occupied by the stylists (see Case C-294-03 Walderdorff
v
Finanzamt Waldviertel (6/12/07) [2008] STC 3079). He further submitted
that if there had been exclusivity of occupation by the stylists as the
supply was of services, which included the supply of equipment necessary for
them to be able to carry out their business, it cannot be an exempt supply of
immovable property by Mrs
Glen-Jones
.
18.
The issue for us to determine is whether the supply by Mrs Glen-Jones
to
the independent stylists in this case was of hairdresser’s facilities and
therefore taxable as contended by
HMRC
or whether, as argued by Mr Corbould, it
is an exempt supply of a licence to occupy land. We first turn to the cases to
which we were referred.
19. Denyer was the first decision of the High Court directly concerning the issue of the correct VAT classification of the supply of a hairdresser’s chair and its surrounding area. In that case the Tribunal had found, as a matter of fact, that an area surrounding the chair was identifiable and exclusively enjoyed by the stylist and, as such, there was an at least an exempt element in the supply. Although the High Court was bound by this finding of fact Briggs J found, at [37], that the Tribunal by excluding the waiting area and wash basins from the “package” [of the supply made to the stylist] “to an overly narrow view of the package as a whole, with the consequence that they over-rated the provision of the exclusive use of the chair and allocated area as being predominant.” He went on to say, at [43 - 44]:
“We do not doubt that, if the circumstances were right, the Appellants could grant to the stylists, licences for the exclusive occupation of areas in their salons. Mr MacNab did not, in terms, resist that argument, but it seems to us to be beside the point. The Appellants' argument depends upon our accepting that, even with such a licence, the stylists could realistically be regarded as carrying on the business of hairdressing within the space, whether of 16 square feet or of 40 square feet, allocated to them. In our view, the answer to that question is plainly no. Indeed, Miss Taylor's own evidence leads inexorably to the conclusion that she did not carry on a business solely within that confined space. An obvious omission is that the licence does not grant her the means by which she and her clients can gain access to the space from the public highway, but even if such an easement were granted, or implied, it is quite clear to us that she is able to carry out only a small part of her business from the confined space. It does not include any facility for answering the telephone to make appointments; for clients to wait; for hair to be washed, or for payment to be taken. In short, it is quite impossible for Miss Taylor to carry on the entire business of hairdressing from her allocated space. Even accepting (which, frankly we doubt) her assertion that she could cut hair without straying outside the space, the cutting of hair, in a modern salon, constitutes only part of the service of hairdressing. The claim that the supply of laundered towels, the wash basins, the telephone, the waiting area, the till and other services of the premises is no more than a means of better enjoying the licence to occupy a space, is, in our view, unsustainable. For that argument to succeed, it is necessary to show that the licence would be sufficient to enable Miss Taylor to carry out her business, even if those services were not provided. That is manifestly not the case. We are satisfied that the proper view is that the Appellants were supplying to the stylists a package including the allocation of space, the supply of goods and the provision of various services.”
20. In Holland Blackburn J said, at [90]:
21. Taylor was a decision of the VAT and Duties Tribunal (Chairman Sir Stephen Oliver QC) in which the Appellants, who rented out an entire hairdressing salon which was visited by their son on “rare occasions”, succeeded in establishing that there was an exempt supply of a leasing or letting of immoveable property. However, unlike the present appeal, in that case the partners never had any hairdressing business operating as a going concern at the premises used by the two stylists to whom they granted a licence and such do not consider, unlike the decisions of the High Court in Denyer and Holland, that it can be applied to the somewhat different facts of the present case.
22. Given the lack
of exclusive possession of the basement by the stylists under the Licence and
the unrestricted access enjoyed by Mrs Glen-Jones
in practice leads us to
conclude that the supply is not of a licence to occupy land. Also, having
regard to the nature of the supply by Mrs
Glen-Jones we find that, on the
facts, it is in essence a taxable supply of hairdressing services and that the
non-exclusive right of the stylists to occupy the basement is but one element
of that supply.
23. We therefore dismiss the appeal.
24. This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be received by this Tribunal not later than 56 days after this decision is sent to that party. The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.