SPEARMINT RHINO VENTURES (UK) Limitedappellant

19439

SUPPLY OF SERVICES — supply — table-dancing premises — dancers entering into agreements with proprietor of premises to dance at the premises — whether dancers supplying services to customers on behalf of proprietor — yes — appeal stood over for further argument on tips obtained by dancers

LONDON TRIBUNAL CENTRE

SPEARMINT RHINO VENTURES (UK) LIMITEDAppellant

- and -

THE COMMISSIONERS FOR

HER MAJESTY’S REVENUE AND CUSTOMSRespondents

Tribunal:Stephen Oliver QC (Chairman)

Michael Sharp FCA

Sitting in public in London on 19 and 20 December 2005

Conrad MacDonnell, counsel, instructed by Vaughn Chown of Numerica, consultants, for the Appellant

Nicola Shaw, counsel, instructed by the acting General Counsel and Solicitor for HM Revenue and Customs, for the Respondents

DECISION

Spearmint Rhino Ventures (UK) Limited (“SR”) appeals against a ruling, in a letter of 20 June 2005, that SR, through its six clubs in the UK, makes supplies of entertainment services to customers.
The ruling was made in response to SR’s claim that the supplies of entertainment services were made, not by it, but by dancers who came to the “clubs” as licensees of SR and themselves provided the relevant entertainment services to the customers.

Brief History and Background Facts, Issues and Contentions

Shortly stated the position is this. SR operates six establishments in the UK where live nude and semi-nude dance entertainment is available to members of the public. The members of the public (“the customers”) enter the establishments on payment of admission fees. When inside, the customers are able to enjoy, for the exclusive benefit of each one of them, performances by individual dancers of dances and/or the opportunity to participate in a conversation with a dancer. The customer pays the dancer direct. The dancer makes payments to the club of, in London, £80 per eight hour session and £40 for each one hour conversation (known as a “sit-down”). SR contend that the VAT position is governed by the proper contractual analysis of the arrangements. The supply of entertainment services is, they say, made by the dancer to the customer pursuant to the contract for the particular dance or for the one hour sit-down; the entire consideration provided by the customer for the dance or the sit-down is due to and belongs to the dancer. Accordingly, say SR, it does not make supplies of entertainment to the customer in return for consideration.
The Customs say that the entertainment services (either provision of dancing or sit-downs by the particular dancer) are made by SR to the customer; the consideration for SR’s supplies is not limited to the set price for the dance or the sit-down; it includes any additional amount paid to or given by the customer to the dancer. The Customs accept that the dancer is self-employed. They say that SR provides the services through the dancers whom they have engaged. Consequently, the VAT on the services supplied through the dancer is the liability of SR.
The question for us arises from VAT Act 1994 which provides, in section 1(1)(a) that VAT shall be charged “on the supply of … services in the UK” and, in section 1(2), that VAT on any supply of services “is a liability of the person making the supply”.
The question whether SR or the dancer supplies the relevant services to the customer depends primarily on the contracts written and oral. From those we have drawn the conclusions of law as to whether, when the dancer supplies her services to the customer, she is doing so as a principal in her own right (as SR contends) or, as the Customs contend, a self-employed person acting on behalf of or for the account of SR. We were referred to a number of decisions of the Courts and Tribunals that provide examples of that approach. Those cases were:

Potter v Customs and Excise Commissioners [1985] STC 45

Cronin v Customs and Excise Commissioners [1991] STC 333

MacHenrys (Hairdressers) Limited v Customs and Excise Commissioners [1992] STC 170

Kieran Mullin Limited v Customs and Excise Commissioners [2003] STC 274

Di Resta & Di Resta v Customs and Excise Commissioners (2005) VAT Dec 18641

Our findings are based on the evidence of the witnesses who attended the hearing and on the documents referred to in this Decision.

We start by examining the documents. The documents relating to the contractual relationship between dancer and SR are primarily the Dance Performance Licence (“the DPL”) which in terms binds the dancer to comply with SR’s Code of Conduct.

The DPL

The DPL is between SR, described as “the Owner”, and the dancer, described as “the Performer”. We were not provided with an actual agreement; instead we were shown a printed and unexecuted document in triplicate form (like the “small print” of an insurance policy).
The operative part follows three “Background” provisions. First, the DPL describes SR’s role as follows:

“(1)Owner operates a business establishment at the Premises where live nude, semi-nude and / or bikini dance entertainment is presented to adult members of the general public …”

The Second and Third Background provisions state the respective interests of SR and the dancer. SR is said to be desirous of licensing to the dancer the right to use the premises for the purpose of presenting nude, etc. entertainment to the public and the dancer is stated as being desirous of licensing those premises for the purpose of performing the entertainment.

The operative part starts with the “license” clause:

“(1)License of Premises

AOwner licenses to Performer the right during normal business hours to use those parts of the Premises designated by Owner for performing of live nude, semi-nude and/or bikini entertainment known as “Booths” upon the terms and conditions set out below.

Performer shall exercise her rights under this license in respect of the Booths at the Premises in occupying whichever Booth that she may for the time being choose, together with a customer and, if relevant, another performer.
Whilst in occupation of a Booth, Performer shall have the right to exclude and admit all others as she shall choose.
In return for her right to occupy a Booth, Performer shall pay the License fee stipulated in Clause 4 below.
Performer’s rights to occupy a Booth under this clause will be for the duration of each dance that she performs in the Booth.

By clause 2, the licence is said to be for one year and thereafter renewable automatically for successive three year terms unless terminated by either party on 30 days notice or on account of a material breach on the part of the dancer.
To enable the dancer to make use of her rights as licensee, Clause 3 entitles her to book in for three sessions known as “Sets” a week, or more, subject to space availability. If she misses a booked session, the clause provides that she is to pay damages to SR. In full, the clause reads:

“Performer shall exclusively establish and set the particular days on which she desires to enjoy her license in respect of the Premises. All such days for each week to be set at least one week in advance. Each day so scheduled shall consist of a minimum of eight consecutive hours (one set) during which Performers shall provide entertainment consistent with this license. The Performer acknowledges that there are other Performers licensing the Premises and agrees to establish her sets consistent with and in co-operation thereof. Owner shall make the Premises available to Performer and Performer hereby agrees to take up her licence in respect of the Premises for a minimum of three sets per week. Once scheduled, neither Performer nor Owner shall have the right to cancel or change any scheduled sets except upon material breach as defined below or as mutually agreed. Performer may be permitted to licence space during unscheduled sets subject to space availability and to the conditions provided below. If Performer misses an entire scheduled set, Performer shall pay to Owner as liquidated damages [£ ] for each set missed. If Performer fails to timely commence a scheduled set, Performer shall pay to Owner as liquidated damages [£ ] for each set Performer so fails to timely commence. Such liquidated damages to be paid by Performer to Owner no later than the end of the next set …”

Clause 4 provides for the License Fee. For what it is worth, we set out the wording found in the printed draft.

“(4)License Fee (delete as applicable)

Performer agrees to pay a License Fee to Owner, at the end of each shift in cash. The sum [£ ] for each topless and nude table and / or lap dance, [£ ] and a stage fee.

A set sum of [£] for each shift and [£] for a stage fee, excluding only tips given by the general public.”

It may be convenient at this stage to summarise the evidence as to the payments said to be covered by that clause. At the Tottenham Court Road premises, the dancer pays SR for day time sessions (mid-day to 8.00 pm) £15 to enter plus £5 a dance. For night-time sessions (8.00 pm to 4.00 am – subject to variation at weekends) she pays £80 to enter plus £40 for each “sit-down” (a facility we will explain later) for the first hour with a customer and £20 for each succeeding hour with that customer. Dancers attending regional SR premises pay SR a fixed £20 to enter plus £7 a dance.

Clauses 5 and 6 govern the dancer’s obligations whilst at SR’s premises. The dancer agrees to dance and in doing so the dancer has to have regard to maximising sales and entertainment at the premises. The dancer is to charge no more than the fees fixed by SR. The dancer is allowed to take tips. Relevant to these appeals are the following undertakings by the dancer who agrees to:

“A.Perform nude, semi-nude and / or bikini entertainment at the Premises for the general public during all hours of each set. Performer hereby specifically acknowledges that Performer’s agreement to perform such entertainment during all set periods of time is a material obligation under this License. In consultation with Performers who enjoy licenses in respect of the premises, Owner shall establish a fixed fee for the price of chair, table and couch dances performed on the Premises (“Dance Performance Fees”) and Performer agrees not to charge a customer more than the fixed price for any such dance performance although nothing contained in this License shall limit performer from obtaining “tips” and / or gratuities over and above the established price for such dances. The parties acknowledge and agree, however, that the Dance Performance Fees are neither tips nor gratuities, but are, rather, charges to the customer as consideration for the service of obtaining a dance performance. Performer recognises that her obligations as set forth in this paragraph are material considerations to Owner in order to (i) produce the maximum gross sales possible from dance performances during the term of the license for the benefit of both Owner and Performer and (ii) assure regular maximum operation of entertainment at the Premises for the benefit of Owner and Performer.

C. Use the Premises in a professional, courteous and reasonable manner in consideration of and for convenience of the customer and other Performers of the Premises.

F.Maintain accurate daily records of all income earned from the Premises during this License in accordance with all applicable taxation laws; …”

Clause 6 gives SR the right to impose rules and the dancer agrees to be bound by them. The rules, in the Code of Conduct which the dancer is required to sign, are used at all SR premises throughout the UK. They require the dancer, among other things -

to sign in with club management at the start of the shift and to arrive in good time,

to wear appropriate attire (e.g. full length gowns and at least three inch heels), (to “remember style and elegance is the desired intent”),
to remain clothed, save when dancing,
to give customers no details about, for example, the addresses and phone numbers of the dancer,
when table dancing to ensure that customers are seated with their hands by their sides, to touch the customer only above the chest and not to dance indecently or to use suggestive language,
never to leave the premises during a set except in case of an emergency and then only with the express permission of the duty manager,
when leaving, either to travel in a nominated taxi or else to be escorted by a member of SR security to their car,
not to leave the Premises at the end of the night shift until after the customers have departed and the dancers have been cleared to leave by the manager,
to participate from time to time in promotional activities and offers as designated by the club manager and
to participate in stage and podium performances as designated by club staff.

The final clause of the Code of Conduct provides that any dancer found to be violation of any of these rules without exception will be subject to the disciplinary procedure.

Clause 7 of the DPL is headed “Status of Parties”. Clause 7(A) reads as follows:

“(A)The parties acknowledge that the status created between Owner and Performer is that of Licensor and Licensee in relation to the Premises and that this status is a material consideration of this License. The parties specifically disavow any employment relationship and agree that this License shall not be interpreted as creating an employer/employee relationship.

(It is, as already noted, accepted by the Customs that the dancer is not an employee of SR.)

Clause 7(B) provides that “were the relationship between” SR and dancer “to be that of employer/employee”, SR would be entitled to collect and retain all Dance Performance Fees, “such funds being acknowledged … to be the sole and exclusive property of” SR; instead the dancer would become entitled to the “applicable minimum wage and … to retain all ‘tips’ and/or gratuities”. It goes on to say that the dancer’s entitlement to obtain and retain the Dance Performance Fees is “conditional upon the acknowledged status of the parties as so set forth in sub clause 7(A)”.
Clause 7(C) provides that if any Court or Tribunal determine that the relationship between SR and the dancer is other than Licensor/Licensee and that the dancer is entitled to monetary consideration from SR, then, to ensure that SR is not unjustly harmed and the dancer is not unjustly enriched, the dancer “shall disgorge herself of and pay to” SR “all net Dance Performance Fees” (subject to certain adjustments).
Clause 10 is headed “Nature of Performances”. It reads

“Owner shall have no right to direct and/or control the nature, content, character, manner or means of performer/performance. Performer acknowledges and agrees, however, to perform live nude, semi-nude and/or bikini entertainment consistent with the type of entertainment regularly performed at the Premises.”

Clause 15 contains the additional obligations of the Owner, it provides

“Owner shall, in addition to the licensing of the Premises as set forth above:

Provide to Performer at Owner’s expense, music used on the Premises, lighting and dressing room facilities;
Pay any and all copyright fees due relative to the music used on the Premises and;
Advertise the business in a commercially reasonable manner for the benefit of both Performer and Owner …”

The dancer releases all rights to photographs and grants the right to use and publish photographs etc of herself.

The local authority license

We saw only the London Borough of Camden license for the Tottingham Court Road premises. This permits SR to use the premises for “music, dancing and entertainment of a like kind” with a maximum of 480 people being accommodated there at any time. Simon Gordon, Chief Financial Officer of SR, explained that the Code of Conduct (referred to above) had been drawn up following long negotiations preparatory to the grant of the license. The negotiations had been between SR, the Council and the Police. The license conditions for each of the SR venues regulate the table dancing which takes place at them all. The following provisions of the license are relevant:

“9.In consultation with the Council and Metropolitan Police, a Code of Conduct for dancers designed to prevent prostitution or unlawful activity taking place shall be produced together with a disciplinary procedure for breaches of the code. No amendment shall be made to the Code or disciplinary procedure without prior consultation with the Council and Police.

10.Pre employment checks for dancers shall be carried out. The checks shall include suitable proof of identify, permission to work, photo, third party insurance, safe system of work. Details of the checks shall be supplied on request to the Council and the Metropolitan Police.

11.Rules shall be produced for customers indicating conduct that is unacceptable. These rules shall be prominently displayed at tables and at other appropriate locations within the club.”

Mr Gordon said that it was a condition of the license that SR was obliged to have fixed rates for the dancers’ services. The dancer, Mr Gordon agreed, might charge more in breach of the rules; but from SR’s perspective, he said the excess would be regarded as a tip. This was in line with his unchallenged statement that SR’s policy is for strict and full compliance with the license. We were shown a Dancer’s Assessment form (in blank) covering the recruitment and induction of the dancer. This states, among other things, that the dancer is to be made familiar with the payment and charging arrangements and with the house rules and codes of conduct. It goes on to state that the dancer will be subject to “ongoing evaluation and supervision by club management to ensure compliance of the above”. It is to be signed by SR and the dancer.