Kieran Mullin Ltd v The Commissioners of Customs and Excise

For VAT purposes, the identity of the supplier of a service depends primarily on the contractual relationship between the parties arranging the service, not on the customer’s perception of that relationship.

Where a salon rents a chair and facilities to a self-employed stylist, and the stylist’s customers and receipts belong to the stylist, the stylist may supply the hairdressing services directly to customers. Contractual controls over attendance, holidays, products and pricing do not necessarily alter that conclusion. Administrative guidelines may assist but cannot replace the underlying legal analysis.

Kieran Mullin Ltd operated hairdressing salons using both employees and self-employed stylists. The stylists worked under identical “Rent a Chair” agreements. The VAT and Duties Tribunal held that two stylists supplied services directly to customers, but that the remaining stylists supplied services to the company, which therefore owed VAT on the customers’ payments.

The company appealed on the basis that the Tribunal had applied the wrong legal tests. The central issue was whether, for the purposes of Value Added Tax Act 1994, the hairdressing services were supplied by the company through the stylists or by the stylists as principals.

1. Appeal allowed. The Tribunal’s decision was reversed and the Commissioners’ direction dated 13 April 1999 was set aside.
2. The critical issue was the contractual relationship between the company and the self-employed stylists. The customer’s knowledge or perception of that relationship was not determinative.
3. The starting point was the Rent a Chair agreement. Its central provision was that the company supplied a chair for rent and that the stylist rented it. That provision, together with the parties’ conduct and the finding that the stylists operated in accordance with the agreements, was consistent with the stylists supplying services directly to their customers.
4. The evidence did not show that the parties contracted for one structure but operated another. Nor did the company’s controls over attendance, holidays, pricing, products or salon standards prevent the stylists from being the suppliers. Those matters might be relevant to whether a person supplying services to the company was an employee or independent contractor, but were of marginal relevance to identifying the supplier of the hairdressing service.
5. The guidelines agreed between Customs and Excise and the National Hairdressing Federation were not the legal test. The company’s arrangements need not correspond in all substantial respects with those guidelines if, on the proper contractual analysis, the stylists supplied the services to customers.
6. The Tribunal therefore applied the wrong legal tests. The company was not required to account for VAT on the customers’ payments because those payments were consideration for supplies made by the stylists.

• High Court (Chancery Division): appeal from the VAT and Duties Tribunal allowed. The Tribunal’s decision was reversed and the direction requiring VAT on the total customer receipts was set aside.