In a case which shows that a tax inspector’s life can often be more exciting than one might expect, the owners of a table dancing club have found to their cost that, in the great pole dance of life, nothing is certain but death and taxes.
Exotic dancers at the club enticed punters on the dance floor and also entertained them in one of six private booths. The most sought-after dancers earned the majority of their income – up to £1,600 a night – giving private dances in the booths. None of them were employed by the club; in fact, they paid a substantial proportion of their earnings to the club for the privilege of using its facilities.
HM Revenue and Customs (HMRC) argued that the club was liable to pay VAT on the income generated from the ‘services’ it provided to the dancers, who paid a £20-40 nightly ‘house fee’ as well as 25 per cent of what they managed to make in the booths. However, the club insisted that the dancers became temporary ‘tenants’ of the booths each time they took a punter behind the curtain for a private dance and that the ‘rent’ they paid was for a ‘supply of land’ and exempt from VAT.
The First-tier Tribunal accepted that, if the booths were the only facility provided by the club to the dancers, the VAT exemption would apply. Dancers were in control of the booths during their periods of occupation and could exclude others from them. It mattered not that the management retained the right to enter the booths for safety reasons or to remove misbehaving punters.
However, the club also provided dancers with music, advertising, lighting, heating and security, as well as use of the upstairs dance floor. The services provided by the club to the dancers went well beyond the ‘passive supply of land’ and were to be treated as ‘one composite supply’. On that basis, the whole of the income received by the club from the dancers was subject to the standard rate of VAT.