The High Court held that, in respect of the services provided by self-employed table dancers at the taxpayer's premises, the taxpayer did not make a supply of entertainment services for VAT purposes.

Facts

The taxpayer operated six clubs in the UK providing table-dancing services to the public. Customers paid the dancers direct and the dancers made fixed payments to the taxpayer. Customs ruled that the self- employed dancers provided their services to the taxpayer and that the entertainment was provided by the taxpayer to the customers. Therefore, they determined that VAT was due from the taxpayer on the monies received by the dancers. The taxpayer appealed, arguing that the dancers supplied their services to the customers pursuant to a contract for a particular dance or for a one hour sit- down with a customer. The taxpayer pointed to the fact that the dancer exercised her own skill and discretion in choosing the customer with whom to contract. It contended that it was not party to the contract, gave no undertaking to the customer to provide the dance or sit-down and had no financial interest in the price agreed between the dancer and the customer. The taxpayer maintained that it allowed the dancer, for her own benefit, to perform on the premises, but that she was under no obligation to perform either at its direction or for people selected by it.

The VAT tribunal decided that there was nothing in the agreement which related to the taxpayer's undertakings to the customers. However, it was clear that the taxpayer's role was to provide entertainment services to meet the requirements of its paying customers and to comply with the local authority licence. The taxpayer recruited the customers, charged them admission, laid down rules of conduct and provided a tariff of charges. The essence of those features was that each dancer was committed in contract for each session to perform in the taxpayer's business and to entertain individual customers. The financial arrangements between the taxpayer and the dancer were agreed between the two. The taxpayer was entitled to receive specified amounts from the dancers and the dancers were free to keep whatever money they received from the customers. Taking into account all of these features, it appeared to the tribunal that there was a contractual framework within which the taxpayer provided the relevant services to the customers through the dancers as agents. The dancers were there to perform and that was the means by which the taxpayer conducted its entertainment. Accordingly, the taxpayer was obliged to account for VAT in respect of the consideration supplied for the dancers’ services ([2006] BVC 4,059; Decision No. 19,439).

The taxpayer appealed.

Issue

Whether, when the dancer supplied her services to the customer, she was doing so as a principal in her own right (as the taxpayer contended) or as a self-employed person acting on behalf of or for the account of the taxpayer (as Customs contended).

Decision

Mann J (allowing the appeal) said that the question was whether, when a dancer agreed to dance, she entered into that agreement on behalf of and as agent for the taxpayer. This was ultimately a case which had to be decided on its own facts and, on the facts, all the dancer's obligations pointed away from agency. The question of control was irrelevant, and it was a very forced construction of events, if it was possible at all, to say that the dancers were contracting as agents for the club. The relevant documents had no particular badges of agency and contained nothing to suggest that the dancer was vested with any authority to do anything on behalf of the taxpayer. Although the taxpayer was entitled to exert a certain amount of control over the dancer, that did not create an agency. It might be consistent with an agency, but that was different.

The evidence clearly demonstrated that the dancer chose her own customers. While she was expected to carry out sufficient performances to further the objects of the club, she was nevertheless, within that constraint, free to decide how many customers she danced for. She decided whether or not she had a sit- down with a customer, and could negotiate a fee which departed from the standard fee. She kept that fee. The fact that she was obliged to pay £40 to the club did not mean that she negotiated the sit-down on behalf of the taxpayer. She negotiated it on behalf of herself. In all the circumstances, the evidence of the relationships in this case did not demonstrate an agency. It was hard to identify any which would support a finding of agency.

The question was whether, when a dancer reached an agreement with the customer, she was in fact making an agreement between the taxpayer and the customer. In this case the monetary arrangements point the other way, and the other factors did not bring the situation back towards agency (Kieran Mullin Ltd v C & E Commrs [2003] BTC 5,455; Ringside Refreshments v C & E Commrs [2004] BTC 5,265; Leapmagic Ltd v C & E Commrs [1991] BVC 876; Cronin (t/a Cronin's Driving School) v C & E Commrs [1991] BTC 5,064 considered).

Accordingly, the tribunal erred in its analysis and reached the wrong conclusion.

Chancery Division.
Judgment delivered 23 March 2007.