VAT — Licences to occupy rooms in massage parlour — Provision of other services — Whether supply exempt from VAT as supply of licences to occupy land — Appeal dismissed
The appellants operated a massage parlour, in which they rented out rooms at a daily rate to self-employed masseuses. Each of the rooms contained a double bed, a chair and a television set. The premises also contained toilet facilities, a kitchen, a lounge used by the masseuses, a client waiting room and a “fetish room”. The appellants provided bed linen, towels, a laundry service, cleaning and maintenance, and heating and lighting. The contract with the masseuses included a charge for use of the laundry facilities, charges in respect of credit card payments by clients and advertising. The appellants provided a receptionist, took client payments and advertised the massage services in the local press and on their website. They also offered private parking facilities and a CCTV security system.
The respondents claimed that VAT was payable on the services supplied by the appellants. The appellants appealed to the VAT and Duties Tribunal, which rejected their contention that they supplied VAT-exempt licenses to occupy land. The tribunal held that the appellants were making a single supply of a package which consisted of a dominant, taxable supply of services to which the provision of the room was incidental.
The appellants appealed, contending that the services were ancillary to the provision of the room, or that the supply of services took its character from the room supply as its predominant element.
Held: The appeal was dismissed.
In order for several elements to qualify as a single supply for VAT purposes, it was not necessary for there to be a principal supply to which the other elements were merely ancillary. It was possible for a single supply to comprise several elements, none of which was ancillary to another, and each of which would, in isolation, constitute a separate supply: Customs & Excise Commissioners v FDR Ltd [2000] STC 672 applied; Card Protection Plan Ltd v Customs & Excise Commissioners [1999] 2 AC 601 and [2001] UKHL 4; [2002] 1 AC 202 considered. In characterising that supply for VAT purposes, the supply could have a generic, “overarching” description that was distinct from its individual elements: College of Estate Management v Customs & Excise Commissioners [2005] UKHL 62; [2005] 1 WLR 3351 considered.
In the instant case, the relevant services were not provided solely as a means to enable the masseuses to better enjoy their licences to use the rooms. The overarching description was that of a supply of massage-parlour services, one element of which was the provision of rooms. That description reflected economic and social reality. It was the correct conclusion even if the provision of the room was, to the masseuses, the single most important element of the overall supply and, as was probably the case, the predominating one. The tax treatment of the case was self-evident once it was established that the other services were not ancillary to the provision of the licence.
Richard Barlow (instructed by JDR Watkins, of Cardiff) appeared for the appellants; Valentina Sloane (instructed by the legal department of Revenue & Customs) appeared for the respondents.
Sally Dobson, barrister
