An adult entertainment venue in Norwich has failed in a novel claim that its share of its dancers’ fees for private performances are free from VAT as exempt supplies of land.
In a recent decision, the Tax Chamber of the First Tier Tribunal backed the stance of Her Majesty’s Revenue and Customs that the services Sugar & Spice provides for its dancers are standard rated for VAT. It found that the club makes a composite supply of services to its dancers in return for a share of their income from private dances, and that these services included advertising, music, lighting, heating, cleaning and security, not only supply of private booths.
Giving the Tribunal decision, Judge Charles Hellier said that Sugar & Spice is an adult entertainment club in Norwich, which has a dancefloor, seating accommodation upstairs and six small, dimly lit booths for private performances downstairs.
He said: “The dancers are not paid by Sugar & Spice; they receive tips for dancing on the dance floor, if they dance there, and fees from patrons for private performances in the booths. The dancers make payments to Sugar & Spice for the use of its facilities.
“HMRC accept that the dancers are neither employees not agents of the club. This appeal concerns the VAT nature of the supplies made by Sugar & Spice to the dancers in return for these payments. HMRC argue that the supplies are standard rated, but Sugar & Spice that they, or at least some of them, are exempt supplies of the letting of land.”
He said that the dancers pay a house fee of £20 – doubled on a Saturday or Sunday – plus a commission of 25% on private performances in the booths. The evidence was that dancers upstairs would be doing well to receive £20 a night from this source, whilst most dancers earned £100 a night from private dancers, and successful dancers could earn as much as £1,600.
Though Sugar & Spice conceded that the house fee was paid in return for a taxable supply, they argued that the commission was for an exempt supply of land.
It claimed that, while in a booth with her customer, the dancer is given control of the booth and is told she can exclude anyone from it and the Tribunal accepted that it must be a fundamental term of the contract for the use of such a booth for such purposes that the dancer can exclude or admit whomsoever she wishes.
But the judge said that the booths are monitored by CCTV and found that the right to occupy a booth was subject to entry to effect summary termination if the booth was used for illegal purposes or in a manner which contravened the club’s licence and found there would be a right to enter in the case of fire or other emergency.
He found that the club made a composite supply of services to its dancers, a central element of which is use of the booth.
He said: “That use taken on its own is the exclusive right to occupy land for a period of time. Leaving wholly to one side the other elements of the club’s provision, we accept that that would be a supply of land even though the time for which it was used was short and not specified as a number of hours or days or weeks in advance. It would have been the passive right to possess land and to repel others from occupation for a period which would not involve the provision of significant services by the club.”
However, he added: “But the composite service supplied to the dancers was different. The club was not passive in its provision. It provided advertising, music, lighting, heating, cleaning, management, security and the use, in common with others, of the upper floor and its facilities. It added value to the simple provision of land. That was to our minds a supply properly characterised as the provision of services rather than the passive supply of land.
“As a result that composite supply did not fall to be treated as a supply of land and is standard rated.”
Dazmonda Ltd t/a Sugar & Spice v The Commissioners for Her Majesty’s Revenue & Customs First Tier Tribunal (Tax Chamber) (Judge Charles Hellier and Sonia Gable)
Simon Goodings and Darren Crawford (officers of the appellant) for the appellant
Brendan McGurk (instructed by the General Counsel and Solicitor to HM Revenue and Customs) for the respondents
