Appeal Number: LON/2009/0571

[2010] UKFTT 227 (TC)

TC00528

Appeal number: LON/2009/0571

Value Added Tax – Assessment – amounts payable by self employed account drivers to Appellant – whether supply for consideration or means of calculating payment to drivers – means of calculating payment – VATA 1994, s.5 (2) (b) – Appeal allowed with costs.

FIRST-TIER TRIBUNAL

TAX

PARKER CAR SERVICESAppellant

- and -

THE COMMISSIONERS FOR HER MAJESTY’S

REVENUE AND CUSTOMS (Practice)Respondents

TRIBUNAL: DRK KHAN (Judge)

GILL HUNTER

Heard in London on 3 and 4 March 2010 and on 19 April 2010

Ms Penny Hamilton, Counsel, for the Appellant

Mr James Rivett,Counsel, for the Respondents

©CROWN COPYRIGHT 2010

1

DECISION

The appeal

1.This is an appeal against an assessment dated 24 February 2009 in the sum of £177,031 plus £20,212.01 interest, a total of £197,243.01 for the periods from 1 January 2006 to 31 July 2008. The assessed sum was reduced on 9 June 2009 to £163,984.00 a difference of £33,259.01 from the original assessment. The assessment is for VAT allegedly due in respect of supplies made by Parker Car Services (“PCS”) to its account drivers in the course of the operation of its taxi business.

2.The core issue raised in this appeal is whether a sum described at the material time by PCS as “Account Work Commission” and subsequently as an “Account Work Discount,” which was charged by PCS to account taxi drivers constituted consideration for a supply of services by PCS within the meaning of Section 5(2)(b) VATA 1994. The Respondents say that it does and that accordingly PCS needs to account for output tax on such amounts.

Chronology

3.The chronology leading to the assessment is as follows

(1)On 13 June 2008 an officer of the Commissioners, David Neal, visited the Appellant’s premises and examined their books and records.

As a result of that visit and correspondence following, HMRC formed the view that the company provided certain services to its employed, and self employed drivers who undertake work for PCS’ account customers, and that those services were for a consideration.

(2)On 28 October 2008 there was a visit by an Audit Services Officer, Ms Susan Coltart.

(3)Following correspondence with PCS’ representatives,Messrs Bright Grahame Murray, chartered accountants, on 4 February 2009, the Commissioners wrote to PCS stating that, in their view, the amount referred to in Driver Statements as Account Work Discount was :

“…….. charges raised for the supply of Parker Cars Services’ infrastructure services to these businesses, in the same way as they are for cash work, and thus are subject to the same liability for value added tax purposes.”

(4)On 24 February 2009, the Commissioners issued an assessment which was for 7/47 of all accounts shown in CORDIC (a software programme) as “Account Work Commission,” including those amounts for employed drivers where the percentage was shown as 100%.

(5)On 2 March 2009, PCS served a Notice of Appeal against the Assessment. Their grounds of appeal were

“The assessments for the periods 1/11/05 to 31/1/06 is excessive and wrong in law and invalid because it is out of time.

The assessment for the period 1/2/06 to 31/7/08 are excessive and wrong in law”

(6)After further correspondence between the parties, on 14 May 2009 a Local Compliance Appeals Review Officer, Mrs Tina Saunders, wrote to Messrs Bright Grahame Murray upholding the assessment, as follows:

“The Commissioners have ruled that the Account Work Commission, now referred to as the Account Work Discount, is standard rated and not zero rated as your clients have been treating it”.

(7)On 9 June 2009, the Commissioners issued a Notice of Assessment in the sum of £163,984 , a reduction from the original assessment.

Background

4.PCS is a partnership which operates a taxi business from premises at Unit 3, Victory Business Centre, Fleming Way, Worton Road, IsleworthTW7 6DB. The partners in that business are Joe Polley and Andrea Polley.

5.PCS uses both employed and self employed drivers; the vast majority (300) are self employed.

6.The company has approximately 40 staff members who run the administrative side of the business, which has a turnover of between £5-6 million per annum. It is a successful business which has been built up from the start and which continues to grow and expand.

7.PCS has a number of customers which include a local authority, an NHS Primary Care Trust and one of Her Majesty’s Prisons and other businesses. These are account customers.

8.The business believes in properly training its administrative staff to provide a good service. Staff are trained in conducting various tasks including telephone bookings, communication and running the control room, which provides administration for the business.

9.The partnership undertakes cash work and account work. Cash work refers to work in which passengers pay cash to the driver at the end of the journey. Account work refers to work where passengers (booking an account with PCS) pay for their journey on receipt of an invoice from PCS, at a later date after the journey has been completed.

10.PCS moved into new premises in 2008. The premises house the main administrative centre for the business. The premises are laid out in open plan to accommodate different activities, including a customer call centre, within which a number of employed staff conduct the bookings for the taxi service business. PCS accepts passengers both on a cash basis and account basis. Where a prospective passenger calls PCS to book a taxi, the person dealing with the call will ask the passenger for their details, including pick up point and destination. Once these details have been taken, the passenger is provided with a price for the journey and at that stage asked whether they wish to pay cash for the fare or put the fare on an account. The passenger can either pay cash at the end of the journey or pay PCS by credit card at the time of booking. Passengers settle account fares on presentation of an invoice by PCS.

11.Some important aspects of the business are explained below.

CORDIC

12.PCS accesses all bookings through a computerised system called “CORDIC”. It is a software system which provides booking and despatch solutions to taxi and courier businesses. It is an integrated system which not only records bookings, calculates fares and deals with accounts but also provides a global programme satellite (GPS) route management and account package. Once all relevant data including pick up address and destination has been input,into the CORDIC system by the call handler and it has been established whether or not the booking is a cash or account booking, the booking is transmitted over the PCS CORDIC network to the drivers, who are linked to the CORDIC system through a computer laptop instrument called an XDA, which is kept in the driver’s car. Drivers can accept a booking and access the details of that booking from within their own car using this XDA facility. CORDIC also calculates the amount owed to individual drivers in the driver statement.

Driver Statements

13.At the end of each week, the CORDIC system operated by PCS produces weekly drivers’ settlement sum statements for each individual driver. The statement which the tribunal had sight of had the following information – a listing of fares recorded as provided by each driver at end of the week, an indication of whether the fares were for cash or account work, an amount recording items identified as ”Cash Work Commission” and “Account Work Commission”, additional charges made in respect of account customers, a rental charge for the XDA receiver installed in the driver’s car and a schedule identifying other miscellaneous charges.

14. The statement also shows a total amount collected by the driver from passengers during the week (cash work), the total amount due from the driver to PCS (Cash Work Commission/Account Work Commission), XDA rental fee and any other fees, the amount payable to the driver by PCS (i.e. total of any fees paid for account work and other charges). The total sum due from each driver to PCS is then netted off against the total sum due from PCS to the driver to provide an overall “settlement statement”.

15.PCS uses Microsoft Access Database and Microsoft Excel to produce summaries of the data from CORDIC and this data can then be entered into accounting software to provide full accounts. VAT returns are produced using data from CORDIC, after it has been reconciled in Microsoft Excel.

16.The CORDIC system therefore provides several important services to PCS when running their taxi business and in dealing with between 7000-8000 jobs per week. It was introduced into the business as a dispatch system in 2003 and, after having investigated different systems. It was adapted to suit the needs of PCS.

Drivers

17.Drivers undertake both cash and account work. All drivers pay £12 plus VAT per week for their XDA in car facility.

18.Where a driver undertakes a cash booking, the driver pays a fixed fee which is a commission fixed at either 20% or 26% of the fare paid by the passenger. The exact percentagepaid depends on the driver, quality of the car and agreement with PCS. The amount which is paid is called the “Cash Work Commissions”. The driver therefore receives either 74% to 80% of the total fare paid by the cash customer. Some drivers for cash work pay a “Circuit Fee” of up to £120 to PCS rather than the Cash Work Commission. PCS accounts for VAT on the Circuit Fee.

19.The drivers undertaking account work, with whom we are concerned in this appeal, are paid for their services at a rate which has been agreed between PCS and the individual driver. PCS determines the cost of sale, which is called the Account Cost Tariff and pays the driver a percentage of this sum. The percentage is either 74% or 80%. The Account Cost Tariff is a notional sum determined by PCS after considering certain market and price data. The Tariff is not the fee charged to the account customer by PCS. The drivers know the prices in the Account Cost Tariff but they do not know the prices charged to the account customers.

20.PCS collects money due from account passengers. PCS pays the drivers directly in relation to work undertaken for PCS and this payment is usually made before the invoices are paid by the account customers, which means that PCS bears the risk of any bad debt on the invoices. If an account customer defaults on a payment, PCS does not seek to recover any of the fare from the driver. The amount retained by PCS (20% or 26% of the Account Cost Tariff), is usually referred to as the Account Work Commission (later changed to Account Work Discount.) The name change was made in 2009 after a visit by HMRC.

21.The drivers are also paid out of pocket expenses, for example, for parking charges. The driver’s statement provides information about cash and account work. As explained earlier, sums due to and from the driver, are netted off to come to a total settlement amount.

22.There are some entries on the driver statements which we need to understand. These are:

(1)“Account Credit” – this is the notional amount on which PCS calculates the amount to be paid to the driver. It is not the amount charged by PCS to the account customer.

(2)“Account Expenditure” – this is the amount payable by PCS to the driver for expenses incurred in undertaking their journeys, for example, parking fees.

(3)“Account Work Commission” (now “Account Work Discount”) – this applies the appropriate agreed percentage, 20% or 26%, to arrive at the account drivers agreed remuneration of either 74% or80%.

23.“The Account Cost Tariff” is a notional sum used to calculate account drivers’ payments.

The relevant legislation

24.Section 1 of the Value Added Tax Act 1994 (“VATA”) provides (so far as is relevant);

z“(1)Value added tax shall be charged in accordance with the provisions of this Act –

(a)on the supply of goods or services in the United Kingdom (including anything treated as such a supply) ….

and references in this Act to VAT are references to value added tax”.

Section 4 of the VATA provides:

“(1)VAT shall be charged on any supply of goods or services made in the United Kingdom, where it is a taxable supply made by a taxable person in the course of any business carried on by him.

(2)A taxable supply is a supply of goods or services made in the United Kingdom other than an exempt supply.”

Section 5 of VATA provides (so far as is relevant):

“(1)Schedule 4 shall apply for determining what is, or is to be treated as, a supply of goods or a supply of services.

(2)Subject to any provision made by that Schedule, and to any Treasury orders under subsections (3) to (6) below

(a)…. supply in this Act includes all forms of supply, but not anything done otherwise than for a consideration;

(b)anything which is not a supply of goods but is done for a consideration, (including, if so done, the granting, assignment or surrender of any right) is a supply of services.”

The Authorities

25.The relevant authorities are:

Gemini Cars (Egham) Limited v Commissioners of Customs & Excise (2006) VTD 20035;

Argyle Park Taxis Limited v Commissioners of Customs & Excise (2007) VTD 20277;

Camberwell Cars Limited v Commissioners of Customs & Excise (2001) VTD 17376;

A2B Radio Cars v Commissioners of Customs & Excise (1997) VTD 15145;

RJ and CA Blanks v Commissioners of Customs & Excise (1996) VTD 14099

Kieran Mullin Ltd v Commissioners of Customs & Excise [2003] STC 274

Appellant’s arguments

26.The Appellant’s main arguments can be summarised as follows

(1)The combined effect of sections 1, 4 and 5(2)(b) VATA is that VAT is only chargeable on the supply of services where there is something done for a consideration. PCS say that apart from supplying the use of the XDA equipment to self employed drivers, PCS does not do anything for its drivers when they are providing their services to PCS for PCS’ account work. Further, apart from paying PCS for the XDA equipment, the drivers do not provide any consideration to PCS in respect of account work. In other words, PCS say they make no supply of administration services to self employed drivers who provide their services to PCS.

(2)The second point the Appellants make is that the drivers do not provide any consideration for a supply to PCS (apart from the payment for the XDA facility). The amount called the Account Work Discount, is only “a mechanism for ensuring that the CORDIC system showed the correct amount due from PCS to drivers for Account Work”. It is not payment or consideration for the supply of services by PCS to the drivers.

(3)PCS rely on the tribunal decision in Gemini Cars (Egham) Limited. (2006) VTD20035 . They quote the following from that case

…. “In our judgment ….. the agreement between the Appellant and the drivers, properly construed, was not that the drivers would pay a fee of 15% of their account-customer earnings to the Appellant in consideration of the services provided to them by the Appellant in that regard, but rather that the Appellant would pay to a driver 85% of any fee agreed between the Appellant and one of its account customers (provided that the fee was, in fact, paid) in consideration of the drivers fulfilling the Appellant’s obligation to provide taxi services to that particular customer, i.e. at the 85% of the driver’s remuneration for acting as agent of the Appellant in relation to the Appellant’s supply of taxi services to its (that is, the Appellant’s) customers”.

24.(4)PCS say that on a proper examination of the authorities, there is no support for the proposition that a deduction from the payment made to a sub contractor for his services is consideration for any general “administrative services”.

24.(5)PCS agrees that it provides administrative services as agent for drivers who undertake cash work. However when undertaking account work, PCS acts as a principal and the drivers supply their services to PCS and not to the customer.

(6)In these circumstances, the drivers have no need for administrative services apart from the XDA, for which PCS makes a separate charge.

(7)The Appellant does not accept the Respondents’ assertion that PCS is making the same supplies to drivers in respect of account work as in respect of cash work.

(8)PCS say that there is only one supply in respect of account customers and that is the supply of taxi services to its customers by PCS. The administrative services form part of the overheads of PCS and are taken into account in determining the price for the supply of taxi services. There is no second supply of administrative services to drivers undertaking Account Work on which VAT is chargeable, as the Respondents submit.

The Respondents’submission

27.The following is a summary of the Respondents’ arguments:

(1)Their core submission is that the sum described by PCS as Account Work Commission/Discount which is charged by PCS to taxi drivers constitutes consideration for a supply of the service or services provided to them by PCS within the meaning of section 5(2)(b) VATA 1994. Accordingly,the Respondents say that PCS must account for output tax on such amounts.