Holland (t/a the Studio Hair Company) v HM Revenue & Customs

A supply to self-employed hairdressers is not an exempt letting of immovable property merely because it includes a right to use a chair or defined area. The court must examine how the arrangement operates in practice, including exclusivity and the essential object of the transaction. A licence which forms part of a commercial package of salon facilities may be only one element of a service and may therefore be standard-rated. Separate contractual charges do not prevent the supplies from constituting a single indivisible economic supply where the elements are closely interdependent and artificial division would distort the VAT analysis.

These were appeals by Andrew Holland t/a the Studio Hair Company and Vigdor Ltd against decisions of the Value Added Tax and Duties Tribunal concerning supplies made to self-employed hairdressers.

The Tribunal held that the arrangements did not include exempt lettings of immovable property. It also held, alternatively, that the arrangements constituted single supplies of salon facilities which were standard-rated. The central issues were whether the contractual arrangements amounted to exempt licences to occupy land and, if not, whether the various elements supplied were separate supplies or one composite supply.

1. The appeals were dismissed. The Tribunal had been entitled to conclude that neither arrangement involved an exempt letting of immovable property.
2. Article 13B(b) of the Sixth Directive and item 1 of Group 1 of Schedule 9 to the Value Added Tax Act 1994 required the arrangements to be considered in their practical and economic context. A letting ordinarily involved conferring, for a period and payment, a right to occupy property as owner and exclude others. The exemption was strictly construed, but not so strictly as to deprive it of its intended effect.
3. In Vigdor Ltd, the allocated floor space was undefined. Stylists could use one another’s chairs, the salon used vacant chairs, and the stylists had to move throughout the premises. In Holland, the allocated areas were incompletely defined and undifferentiated in practice. Other stylists, clients and staff routinely crossed them. The Tribunal was therefore entitled to find that the arrangements conferred no monopoly or effective exclusive occupation.
4. The Tribunal was also entitled to find that the arrangements constituted single indivisible economic supplies. The chair, space, washing facilities, reception, equipment, staff and other services were closely interdependent and together enabled the stylists to carry on their businesses. It would be artificial to split those elements merely because the agreement provided for separate licence and service charges.
5. Following the reasoning approved in Byrom (t/a Salon 24) v Revenue and Customs Commissioners, a composite supply could have an overarching character different from that of any one constituent element. There was no finding that the licence element was predominant. In any event, the arrangements were properly understood as the provision of salon facilities or a hairdressing-business service, rather than the passive making available of property.
6. The Tribunal’s factual conclusions were mixed findings of fact and law. In the absence of a material misdirection, the appellate court had to consider the findings as a whole and should not interfere merely because it might have reached a different conclusion.

High Court (Chancery Division): Appeals from decisions of the Value Added Tax and Duties Tribunal released on 28 August 2007 were dismissed.