Spearmint Rhino Ventures (UK) Ltd v HM Revenue & Customs

Whether entertainment services are supplied by a club or by self-employed performers is determined by the substance of their relationship and the agency question. Self-employed status, the club’s control, the performers’ integration into the business and the club’s benefit from their activities are not, individually or collectively, conclusive. A licence enabling performers to trade at premises, coupled with their retaining customer fees, choosing customers and negotiating engagements, may show that they contract as principals. Customer-facing labels and pricing arrangements are of limited assistance unless they illuminate the legal relationship.

Spearmint Rhino appealed against a VAT and Duties Tribunal decision dated 27 January 2006. The Tribunal had held that entertainment supplied by dancers at the appellant’s clubs was supplied by the appellant through the dancers as agents. The appellant argued that the dancers supplied private dances and companionship services to customers in their own right. The central issue was whether, on the contractual documents and facts, the dancers acted as principals or as agents for the appellant.

1. Appeal allowed. The Tribunal had erred in law. The appellant did not make the relevant supplies for VAT purposes.
2. The issue was one of agency, not employment. The fact that the dancers were self-employed did not determine whether they acted as agents. Conversely, the club’s control over attendance, conduct and pricing, and its commercial benefit from the dancers, was consistent with agency but did not establish it.
3. The Dance Performance Licence was a genuine licence permitting each dancer to enter the premises and ply her own trade. It contained no grant of authority to contract on behalf of the club. The surrounding documents, including the application and code of conduct, did not alter that conclusion.
4. The financial arrangements were of particular significance. The dancers retained the fees for dances and sit-downs, chose whether to perform for particular customers, and could negotiate sit-down fees. Their payment of fees to the club did not mean that they negotiated with customers on the club’s behalf. These matters pointed strongly towards the dancers contracting as principals.
5. The customer notice and references to the club’s customers or standard fees were neutral or of limited weight. The proper question was whether, when a dancer agreed with a customer, she made an agreement between the club and the customer. On the evidence, she did not.
6. The Tribunal’s description of the arrangements as a contractual framework within which the dancers acted as agents did not identify the legal features that created agency. The relevant legal analysis was open to the High Court on appeal because the issue was one of law rather than fact and degree.

• High Court (Chancery Division): On appeal, Mann J allowed the appeal and substituted a determination that the appellant did not supply the relevant entertainment services for VAT purposes.
• VAT and Duties Tribunal: On 27 January 2006, the Tribunal rejected the appellant’s appeal and held that the appellant supplied the services through the dancers as agents.