Revenue and Customs v Denyer

For VAT purposes, a chair-rental arrangement in a hairdressing salon may include a package of rights and facilities which must be classified as a whole. The exclusive use of a chair and surrounding area may be an important element, but it is not decisive where the stylist’s business also requires shared facilities such as wash basins and a waiting area. The correct question is whether the package is economically and commercially a letting of immovable property or the provision of hairdressing facilities. The exemption for lettings under Value Added Tax Act 1994, Schedule 9, must be interpreted consistently with Article 13B(b) of the Sixth Directive. The appeal court should exercise caution before disturbing a specialist tribunal’s fact-sensitive assessment, but may correct an error of legal analysis and determine the classification afresh.

The Commissioners appealed from a decision of the VAT and Duties Tribunal released on 26 April 2007. The Tribunal held that payments made by self-employed hair stylists to Christopher James Denyer for allocated chairs and related facilities represented the grant of an interest or right over land, or a licence to occupy land, within Schedule 9 to the Value Added Tax Act 1994. The consequence was that the supplies were exempt from VAT and Mr Denyer was not liable to register or to pay a late notification penalty.

The High Court had to determine the precise services supplied, the correct VAT classification of the package, and whether the Tribunal’s analysis was legally sound. It also had to decide whether the late notification penalty should be determined on appeal or remitted.

1. Appeal allowed in relation to classification. The Tribunal erred by omitting from the package the implied rights to use the shared wash basins and customer waiting area. Those facilities were necessary for the stylists to conduct their businesses and formed part of the services supplied.
2. The question whether facilities were used by toleration or under an implied contractual term was one which the Tribunal should have resolved. On the findings, the only proper conclusion was that use of the wash basins and waiting area arose by necessary implication from the agreements.
3. The exclusive use of an allocated chair and surrounding area was capable, considered separately, of constituting a letting of immovable property. Some encroachment or shared rights of way did not destroy exclusive occupation. However, the relevant VAT classification had to be made by examining the package as a whole.
4. The exemption in Schedule 9 was to be interpreted consistently with Article 13B(b) of the Sixth Directive. The exemption is strictly construed, but in a manner which preserves its intended effect. A letting normally involves the conferral, for a period and payment, of a right to occupy property as an owner would and to exclude others.
5. No general de minimis principle should be derived from an obiter observation in Staatssecretaris van Financien v V.O.F Coffeeshop “Siberie”. The size of the space may instead be relevant to whether it is economically severable from the rest of a package and sufficiently prominent to determine the classification.
6. The package supplied here was the provision of hairdressers’ facilities, not the letting of immovable property. The chair was an important element, but the stylists needed the salon as a whole, including shared facilities, to conduct substantially the whole of their businesses. The broad consensus of the hairdressers’ tribunal decisions was correct.
7. The late notification penalty was remitted to a differently constituted Tribunal. The High Court lacked sufficient material to decide whether Mr Denyer had a reasonable excuse under section 67(8) of the Value Added Tax Act 1994.

• High Court (Chancery Division): allowed HMRC’s appeal against the VAT and Duties Tribunal’s classification decision and remitted the late notification penalty issue to a differently constituted Tribunal.
• VAT and Duties Tribunal: decision released on 26 April 2007; held that the supplies were exempt lettings or licences to occupy land.