VAT – Exempt supply – Hairdressing salon – Chair rental – Appellant salon operators providing exclusive use of chairs to self-employed stylists together with associated facilities – Item 1 in Group 1 of Schedule 9 to Value Added Tax Act 1994 – Whether exempt leasing or letting of immovable property for VAT purposes – Whether single indivisible supply of standard-rated hairdressing services – Appeals dismissed
Each of the two appellants ran a hairdressing salon. They appealed from decisions of the VAT and Duties Tribunal, by which it held that they were obliged to register for VAT since supplies provided to self-employed stylists who worked from the salons were standard-rated for VAT purposes. The tribunal held that those supplies did not include “the leasing or letting of immovable property” so as to fall within the exemption in item 1 in Group 1 of Schedule 9 to the Value Added Tax Act 1994, or that, even if they did, the supplies were in any event properly characterised as standard-rated, single supplies of hairdressing facilities.
The stylists operated from the salons pursuant to written agreements with the appellants. These purported to grant a “licence to occupy” in respect of a designated area that contained one or more chairs and mirrors, for which a licence fee was payable, and further provided for the payment of a service charge for the shared use of the salons’ other facilities, including a waiting area, a staffed reception, sinks for washing hair, utilities and telephone, and laundered towels. The appellants appealed against the tribunal’s characterisation of those arrangements for VAT purposes.
Held: The appeals were dismissed.
Whether the exemption applied in any particular case was a mixed question of fact and law such that, in the absence of some misdirection in law, an appellate court should interfere with the finding of the tribunal only if its decision was one that no tribunal, properly directed, could have reached. Applying that approach in the instant case, the tribunal had been entitled to conclude that an exempt licence falling within item 1 of Group 1 of Schedule 9 did not arise. Relevant to that conclusion was that the areas allocated to the stylists were incompletely defined, were undifferentiated on the ground and anyone was free to cross the stylists’ allocated areas. A stylist did not enjoy a monopoly over the area, so far as it was ascertained, that had been allocated by the agreement. The tribunal had been entitled to conclude that each stylist received no more than a licence to use the chair allocated to him or her; the licence was a licence to use land rather than a licence to occupy land: Commissioners for Customs & Excise v Sinclair Collis Ltd [2001] UKHL 30; [2001] STC 989; [2001] 27 EG 131 (CS) and Commissioners of Revenue and Customs v Denyer [2007] EWHC 2750 (Ch); [2008] 1 EGLR 87; [2008] 05 EG 168 applied, Belgium v Temco Europe SA C-284/03 [2005] STC 1451 distinguished.
The tribunal had also been entitled to conclude that in each case under appeal there was a single indivisible economic supply. Although instances of such a supply might be rare, the court should not be predisposed to regard a supply containing several elements as a series of separate supplies but should simply ask whether the elements supplied were so closely linked that, viewed objectively, they formed a single indivisible economic supply that it would be artificial to split: Levob Verzekeringen BV v Staatssecretaris van Financien C-41/04 [2006] STC 766 and Tumble Tots UK Ltd v Commissioners for Revenue & Customs [2007] EWHC 103 (Ch); [2007] STC 1171 applied. Moreover, a single supply comprising several elements might be characterised for tax purposes by an element that was not the principal element within the overall supply but that reflected the economic and social reality of that supply: Byrom (t/a Salon 24) v Commissioners for Revenue and Customs [2006] EWHC 111 (Ch); [2006] STC 992 applied. Further, the exemption did not extend to a licence to occupy land that was only one element of a package of supplies made by the taxpayer to his or her customer where the supplies were commercial in nature or were best understood as the provision of a service rather than the making available of property: Temco applied. In the instant case, the facilities supplied by the appellants, including the licence to use a chair and a space in the salon, all combined to enable the stylists to carry on business as self-employed hairdressers. The various facilities were closely interdependent in that the provision of one was of little or no practical utility without the provision of the others, and all were provided pursuant to a single agreement.
Edmund King (instructed by VAT Management Services Ltd) appeared for the appellant; Sarabjit Singh (instructed by the legal department of HM Revenue & Customs) appeared for the respondents.
Sally Dobson, barrister
