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

These are appeals by the taxpayers against two decisions of the Value Added Tax and Duties Tribunal (Sir Stephen Oliver QC, President, and Diana Wilson) released on 28 August 2007. By their decisions the Tribunal ruled that supplies by the appellants to self-employed hairdressers (or stylists) did not include “the leasing or letting of immovable property” and that, even if they did, the supplies were properly to be characterised as single supplies of (putting it shortly) hairdressers’ facilities which were standard-rated for VAT purposes.

In fact, the two appeals, which I shall refer to for short as Holland in the case of appeal 0663 and Vigdor in the case of appeal 0664, were heard together with a third (Decision 20323) called Taylor, also concerned with supplies to self-employed hair-stylists and also raising the same issue. In contrast to Holland and Vigdor, the Tribunal ruled in Taylor that the supplies by the taxpayer in that case included a leasing or letting of immovable property and were not to be regarded as a single indivisible economic supply.

At the heart of the first issue was the scope of the exemption from VAT of “the leasing or letting of immovable property” conferred by Article 13B(b) of Council Directive 7/388/EEC (the Sixth Directive) which has since become Article 135(1)(l) of Council Directive 2006/112/EC. The relevant domestic enactment of Article 13B(b) is item 1 of Group 1 of Schedule 9 to the Value Added Tax Act 1994 (“the 1994 Act”) which refers to a “licence to occupy land”. At the heart of the second issue was the treatment for VAT purposes of a supply where there are several elements to the supply: did each element of the overall supply made to the stylists retain its separate VAT treatment or were they to be treated as a single or composite supply and, if the latter, how was the supply to be characterised? These are familiar issues in cases involving stylists carrying on business as self-employed hairdressers in premises and using other services connected with hairdressing supplied to them by the taxpayer. With the exception of Taylor, the taxpayer has failed in every one of the decisions to which my attention was drawn.

What follows is taken, with some adaptation, from the Tribunal’s decision in Holland. I was also taken to the underlying written form of agreement used in that case.

Andrew Holland, the appellant in Holland, was during the period to which the appeal related the sole proprietor of a ladies’ hairdressing salon in King’s Lynn. He appealed against the decision of HM Customs and Excise (as they then were), dated 27 August 2002, that the supplies of certain services to self-employed stylists working from the salon premises were standard-rated and, accordingly, that he was liable to be registered for VAT. It was common ground before the Tribunal that if the supplies to the stylists were properly standard-rated, Mr Holland should have been registered with effect from 1 June 2002.

The Tribunal heard evidence from Mr Holland and two other stylists who had each carried on a self-employed business at the salon since the early 1990s.

Having leased the premises from his father from the early 1990s (paying £1000 per week for two of the floors), Mr Holland had bought the premises from his father a few years before the Tribunal hearing. As I understood it two of the floors (the ground and first floors) were occupied by stylists and the third, on the second floor, was used by Mr Holland for training. During the relevant period there were at the premises seven stylists, including Mr Holland, and four “juniors” who acted as assistants to the stylists.

During the relevant period each stylist entered into a written agreement with Mr Holland which was in a form produced by the National Hairdressers’ Federation. In the copy of the agreement which was in evidence before the Tribunal Mr Holland was described as “the Owner” and the stylist, in this case a Ms Claire Thorpe (or Steele as she later became), was described as “the Independent Contractor” or “the Licensee” for short.

Clause 2 of the agreement (headed “The Intent and General Principles”) stated, by clause 2.1.1, that each party was to have “ultimate command and authority over all aspects of their respective business or enterprise”, by clause 2.2.1, that the licensee should “enjoy, without let or hindrance, possession of the designated land and to have right of passage to that land” and, by clause 2.2.3, that each party was to have “equal rights to enter onto, and undertake lawful activity from that land which comprises the common parts in mutual harmony and compatibility and to use such common area in the furtherance of their business”. Clause 2.3 stated that nothing in the agreement should be deemed to constitute a partnership between owner and licensee or a joint venture or agency between them. By clause 3.2 the licensee warranted to “occupy and use the Salon for the purpose of conducting his own independent hairdressing business, including activities normally ancillary to hairdressing, and is acting on his own behalf…”.

Clauses 4 and 5 were headed “Licence to Occupy Land”. Clause 4.1 provided that the stylist “may occupy the property described in the schedule (“the Designated Area”) with the benefit of the facilities and services for the purposes of conducting his own hairdressing business and activities normally ancillary thereto…” from the date of the agreement until terminated in accordance with the provisions therein contained. Clause 8 provided that the agreement was to continue until terminated by either party giving notice (either three months or not less than 21 days in the case of a breach of the agreement) or in other stated events (for example, death or the onset of an insolvency proceeding). The “Designated Area” was described in the schedule to the agreement as an eight square metre area “etched” (I think that the reference in the schedule should be to “edged”) in red on an annexed plan. The Tribunal was not supplied with a plan so edged. By reference to the plan attached to Mrs Steele’s agreement the designated area allocated to her is shown as including two mirrors against the wall on the left of the ground floor and two chairs. In all, three such areas were shown on the plan with Mr Holland’s nearest to the entrance to the salon. It showed a broken line between his area and Mrs Steele’s, stretching out from the wall bearing the mirrors towards the centre of the room, and another such line between Mrs Steele's designated area and the third such area in the room. There was no line to mark the extremities of the three areas opposite the side formed by the wall. The plan also showed a sofa for waiting clients about four feet from the end of the broken line between Mrs Steele’s area and the third area. Towards the back of the ground floor the plan showed the room to narrow with a step up, at the edge of the third area, into a smaller area within which were three “backwashes” (basins for washing clients’ hair) marked 1 to 3 with storage cupboards on the opposite wall.

Each stylist agreed to pay two amounts to Mr Holland: a “licence fee” and a “service charge”. In the case of the Mrs Steele’s agreement, clause 4.2 of the agreement provided that she should pay a licence fee of £150 per week with six-monthly reviews to reflect changes in the Retail Prices Index.

By clause 4.4 it was provided as follows:

Clause 4.5.1 obliged the licensee to use the designated area only for the purpose of his hairdressing business including those activities normally ancillary to hairdressing. By clause 4.5.7 the licensee agreed “not to interfere in or obstruct the running of the Owner’s own business from the Salon nor that of any other independent contractor permitted by the Owner to carry on business from the Salon”.

Clause 4.6.1 obliged Mr Holland, as “Owner”, to pay all rates, property taxes, property maintenance, decoration and insurance (not including professional negligence insurance of the stylist). Other obligations owed to the licensee included:

Clause 5 set out various agreed matters including the following:

Clauses 6 and 7 were headed “Contract for Services”. By clause 6 (headed “Facilities”), Mr Holland, as owner, agreed to provide the licensee with certain services in consideration of a service charge calculated by reference to a percentage of her gross monthly turnover. (In the case of the agreement with Mrs Steele this was fixed at 7%.) The services, which were listed in the schedule to the agreement, amounted to the use of the salon facilities (eg washroom, toilets, staff room, kitchen, reception facility, heating, lighting, water, laundered towels, cleaning, maintenance and waste disposal), use of Mr Holland’s staff (eg to maintain a fully-staffed reception, to wash hair, to sweep up hair and to prepare refreshments for clients) and use of salon equipment (eg hairdressing chairs, mirrors and hairdryers). Clause 7, among other matters, stated (in repetition of clause 2.3) that the licensee was self-employed for the purpose of conducting a hairdressing business, including those activities ancillary to hairdressing, and that the licensee was not an employee, servant or agent of the owner.

The Tribunal referred to the evidence of another stylist, Melanie Brodrick, who was allocated one of four areas on the first floor of the premises (with a chair and mirror) opposite which was a sitting area. There was also a separate area on the first floor containing four basins.

In a section of the decision headed “how exclusive is each stylist’s designated area?” the Tribunal recorded (1) that there were no markings on the floor to show the designated area of any stylist, (2) that the chair or chairs, mirror and space for keeping the stylist’s tools and equipment were for the exclusive use of the particular stylist to whom the area had been allocated and (3) that in the course of their activities at the salon other stylists and their clients would regularly walk over the areas shown on the plan as the designated areas of particular stylists. They also recorded that the agreement itself provided (as already set out earlier) that the licence did not give the licensee exclusive possession of the designated area or of the salon and that, although clause 5.3 enabled Mr Holland to use the particular stylist’s designated areas if that stylist was absent for 15 consecutive working days, neither of the stylists who gave evidence could recall that having happened.

In paragraphs 21 and 22 the Tribunal went on to record points made by the two stylists in their evidence, namely that they each had their own clients, had their own hairdressing equipment which they usually kept behind the mirror in their own designated area, and provided their own shampoos and oils etc. Other points from their evidence which the Tribunal noted were that the two stylists made use of the reception area and computerised booking facilities, heating, lighting, hot and cold water and waste disposal facilities which Mr Holland had contracted to provide and the services of the juniors engaged by Mr Holland and that when working in the salon itself there was no other source of those facilities so that they could not carry on business unless all of those facilities were provided within the salon. The Tribunal also noted the importance given by the two stylists to having somewhere to work in the salon but equally their acceptance that their activities could be performed without a fixed designated area and that it did not matter to them precisely where the chairs were situated.

In paragraph 23 the Tribunal went on to note that the obligation to provide the services to the stylists lay with Mr Holland alone and that he aimed to break even by recovering the cost of the services from the stylists, with each contributing to expenses by way of a pre-agreed percentage of turnover. In paragraph 24 the Tribunal discussed how the weekly licence fee came to be calculated - on which the evidence was unclear - but concluded that Mr Holland was not seeking to load on to the licensees any of the stylists’ payment obligations for the services provided to them. The Tribunal also noted, in paragraph 25, that Mrs Steele “wanted somewhere to carry on her styling business”, that it was not necessary to that activity that she was granted a licence and that, according to her evidence, she would have been happy if the agreement had not mentioned any licence fee but had simply charged a single amount. The Tribunal recorded that the other stylist, Ms Brodrick, was less clear on the point. At paragraph 26 the Tribunal concluded that:

They also noted that if the stylists did not attend and carry on business at the salon Mr Holland could take back the designated area and use it for the purposes of his business.

As with Holland, what follows is taken, with minor adaptations, from the Vigdor decision.

Vigdor was appealing against a ruling given by HM Customs and Excise as long ago as 28 January 1997 to the effect that supplies by it to self-employed stylists were wholly taxable supplies.

Vigdor carried on business as a hairdressing salon, open seven days a week, from premises in Queensway in west London. The premises were on two floors. The ground floor, which was open plan, consisted of a reception area, a till, a number of seats and sink units and a “mixing” room. Michael Spiegler who gave evidence to the Tribunal and was a director of Vigdor worked for Vigdor as a stylist from the ground floor which he occupied with other employed stylists. The other floor, the basement, consisted of an administrative office, four self-contained beauty rooms and a separate room in which there were chairs, two wash basins, a dye-mixing area and a client waiting area with its own chairs. The dispute concerned the supplies made by Vigdor in respect of this separate room.

In 1996 there were three self-employed stylists. A sign on the door to this separate room in the basement stated that it was for the use of independent contractors. On each mirror there was a sign stating that each stylist’s chair was for the sole use of a designated stylist. The three stylists shared the use of the wash basins and the dye-mixing room and the use of a junior assistant. They also shared, along with the rest of Vigdor’s staff, the same appointment book and till. They received their respective shares of the takings from Vigdor each week.

It was common ground before the Tribunal that the following provisions of a written form of licence agreement were in operation between Vigdor and the three stylists in 1996 (referred to in the form of agreement as the “Chairholder”). The document in evidence before the Tribunal, which was in blank form as regards the name of the chairholder and the particulars material to that chairholder, was very much briefer than the agreement used in Holland. Describing itself as “a licence to occupy area - floor space” it set out a series of agreements as follows:

By clause 8 it was provided that the chairholder should alone enjoy the benefit and alone bear the cost of his/her business enterprise and, by clause 11, that he/she would provide all his/her own personal equipment. By clause 14 it was provided that the chairholder should be completely autonomous and that the company should have no control over the weekly hours of occupation of the area - floor space but that the chairholder should be responsible for arranging alternative cover in respect of anticipated protracted absence. Finally, it was provided by clause 17 that the licence should be terminated by either side giving 14 days’ written notice.

In paragraph 9 of Vigdor the Tribunal recorded that at the material time the stylists paid 10% of takings as a service charge and that the clause 4 charge (for the licence to occupy) was 60% of takings. They also recorded Mr Spiegler’s evidence that the 10% would cover his expenses and that the 60% provided “a profit to Vigdor on the downstairs area”. In paragraph 10 the Tribunal noted that there were no floor markings to show the floor space referred to in clause 2 and that Mr Spiegler did not know what size those floor spaces were. In clause 11 they noted from Mr Spiegler's evidence that within the confines of the basement area were all the facilities a self-employed stylist could require, that the stylists were given the opportunity to work upstairs if their clients were unwilling to go downstairs and that when the downstairs flooded, which frequently occurred, upstairs chairs were made available to the affected stylists. They also noted that the stylists used each others’ chairs when one or more were absent and that, according to Mr Spiegler, it was “up to them, between themselves, if they wanted to change chairs”.

In paragraph 12 the Tribunal noted that sometimes Vigdor’s own clients wanted for cultural reasons to have their hair styled downstairs rather than in public view and that in that event they would be brought downstairs by a Vigdor employee and the styling done from one of the vacant chairs without prior permission from the self-employed stylist whose chair it normally was. The Tribunal quoted Mr Spiegler as saying “there will always be a vacant chair”.

In paragraph 13 the Tribunal noted that the stylist who had rented a chair could not “carry on her business from her ‘floor space area’ alone: and that she has, for example, to go and meet her client, has to take her client to the wash basins and has to go to the dye-mixing area”. They referred to Mr Spiegler’s evidence that the stylists had to move around the premises “to do their jobs” and that while Mr Spiegler could not say what area comprised the particular stylist’s floor area, no stylist had ever complained that another stylist had crossed her space. They quoted him as saying that this had “never been an issue”. The Tribunal went on in clause 14 to state as follows:

In paragraph 15 the Tribunal noted that there was no evidence that any stylist had chosen not to use the services listed in clause 7 and that the services were listed because all were essential to enable any stylist to carry on business. Finally, in paragraph 16, the Tribunal stated that they were not satisfied that the “so-called rental of the floor area of 60% of turnover” reflected an arms-length commercial rent for the area licensed but saw it instead as a source of profit to Vigdor.

This was dealt with by the Tribunal in paragraphs 29 to 31 of the decision. In paragraph 29, after noting that by clause 4.4.2 of the agreement the licensee was not given exclusive possession of his/her designated area or of the salon and that by clause 5.2 he/she was not entitled to exclusive occupation or possession of the designated area, the Tribunal said this:

The Tribunal went on in paragraph 30 to refer to the ruling of the ECJ in Belgian State v Temco Europe SA (Case C-284/03) [2005] STC 1451 (“Temco”) on the characterisation of a “letting of immovable property” within the meaning of Article 13B(b) as “essentially the conferring by a landlord on a tenant, for an agreed period and in return for payment, of the right to occupy as if that person were the owner and to exclude any other person from enjoyment of such a right…”. The Tribunal next asked the following question: “…assuming there were an acceptable delineation of the particular designated area, does the restriction of the stylist’s exclusive occupation, ie the freedom given to other stylists to cross a particular stylist’s designated area, displace that stylist’s right of exclusive occupation of that area of property?” Then, after quoting further from the judgment in Temco, the Tribunal said this:

The Tribunal therefore concluded, in paragraph 31, that “for those reasons” they did not think that the purported “licence” in the agreement was an exempt supply within Article 13B(b)”.

The conclusion that there was no exempt supply within Article 13B(b) meant, as the Tribunal pointed out, that the overall matter was resolved against Mr Holland since all of his supplies to the stylists were standard-rated. But in case that conclusion should be wrong and there was indeed an exempt letting the Tribunal proceeded, in paragraphs 33 to 39, to consider (a) whether there were separate supplies of the licence and of the other services set out in the schedule to the agreement and (b) if not, and there was only a single supply, whether that supply was to be characterised as that of the licence, ie as exempt.

The Tribunal began by summarising the consideration that Mr Holland agreed to give to the stylists in return for the payments by them:

In paragraph 35 the Tribunal then summarised the contentions of HMRC on how that consideration was to be regarded, ie as a single supplier, and, in paragraph 25, how, if that contention were correct, the single supply was to be characterised:

The Tribunal next proceeded to set out more of the facts that they had found:

The Tribunal then reached conclusions on the two issues identified in paragraphs 35 and 36. They did so in the following terms:

The conclusion reached, that there was a single supply only which was not to be characterised by any element in it as a letting of immovable property, meant that the appeal failed even if there was a letting of immovable property.

As with their decision in Holland the Tribunal dealt with the two issues of an exempt letting and whether there was a single supply as discrete matters.

The Tribunal set out their conclusions on whether there was an exempt letting of immovable property in paragraphs 19 to 25 of the decision. In paragraphs 17, 19 and 20 they referred to various passages of the judgment in Temco and in particular to the need, identified in Temco, for “exclusivity” as a key factor in the concept of a letting of immovable property within Article 13B(b).

In paragraph 21 the Tribunal asked themselves whether, having regard to paragraph 19 of the judgment in Temco, it could be said of the right granted to the stylist under the licence agreement that it gave her the right to occupy an “area-floorspace” as if she were the owner and to exclude any other person from enjoyment of such a right of occupation. The Tribunal then continued:

In paragraph 22 they referred to the facts in Temco in order to state, by way of contrast, that in Vigdor “the area-floorspace could be freely accessed by anyone lawfully in the salon and not just by Vigdor as landlord”. Thus, the Tribunal concluded that the licence agreement, insofar as it conferred a licence to occupy, lacked the necessary attribute of exclusivity.

In paragraph 23 and 24 of the decision, the Tribunal considered whether the licence agreement fulfilled another requirement of a letting of immovable property, namely that it was to be distinguished from activities best understood as “the provision of a service rather than simply the making available of property”. The Tribunal said this:

In the result therefore the Tribunal determined - see paragraph 25 - that there was no exempt letting of immovable property to the stylists. This meant that the licence supply was standard-rated.

Having come to that view Vigdor’s appeal failed and the Tribunal had no need to consider whether for VAT purposes the arrangements between Vigdor and the individual stylists gave rise to a single or composite supply and, if so, what its characterisation was. But it proceeded nevertheless to do so. Since the decision on this point (headed “was there a separate exempt supply?”) is so short it is convenient to set out in full what the Tribunal said:

It will be observed that the Tribunal merely decided that there was a single supply for VAT purposes. They did not grapple, at any rate in any explicit manner, with the further question: assuming it was a single supply, how was it to be characterised? For it is only in the event that, given a single supply, the supply takes its character from the exempt letting element that the further issue has any materiality. The nearest the Tribunal got to that question is their description, in the penultimate sentence of paragraph 26, of the single supply as “the real service of salon facilities”.

It was common ground that the exemption from VAT enjoyed by the “grant of any interest in or right over or any licence to occupy land” conferred by item 1 of Group 1 of Schedule 9 to the 1994 Act is to be interpreted in accordance with the wording and purpose of Article 13B(b) which it was enacted to implement. How then is the concept of “the leasing or letting of immovable property” - which is how the exemption is worded in Article 13B - to be understood? Rather than go over the relevant authorities and explain in my own words the principles to be extracted from them, I am content to adopt the following summary - which neither side questioned - set out in the recent decision of Briggs J in Revenue and Customs Commissioners v Denyer[2007] EWHC 2750 (Ch); [2008] STC 633 (“Denyer”) at [19]:

Mr Edmund King, appearing for the appellant taxpayers, pointed out, by reference to an observation of Lord Millett in Customs and Excise Commissioners v Sinclair Collis Ltd[2001] UKHL 30, [2001] STC 989 at [49] (“Sinclair Collis”), that an exempt licence can consist of a very small space such as a kiosk or shop counter (although not, as in that case, a movable cigarette machine which the licensor was entitled within certain limits to move around). He also submitted that it does not follow that there is no exempt supply merely because other services are provided together with the licence to occupy. In this respect he referred me to the opinion of Advocate General Jacobs in Swedish State v Lindopark AB (Case C-150/99) [2001] STC 103 (“Lindopark”). That case was concerned with the running of a commercial golf course by Lindopark which offered its customers who were exclusively business undertakings wishing to provide their staff and clients with rounds of golf at the golf course, the right in return for a membership fee to book rounds on the golf course for persons selected by them. One of the questions was whether Lindopark’s business fell within the exemption provided by Article 13B(b). The Advocate General considered that it did not. In paragraphs 31 to 35 of his opinion, he said this:

Mr King’s purpose in referring to Lindopark was to draw attention to the Advocate General’s observation that, but for its inclusion as one of the exceptions to the exemption provided by Article 13B(b), the hire of a hotel room would fall within the scope of that exemption because otherwise there would have been no need to exclude it from the exemption and that this is so notwithstanding that a large number of other services are invariably provided along with the accommodation itself.

I am not concerned with the provision of hotel accommodation but, in any event, I am far from persuaded that the point with Mr King sought to draw from the citation in Lindopark is valid. In a footnote to the opinion (to be found at [2001] STC 112) it is stated that:

The question debated before me was not whether the Tribunal misstated the applicable law but whether, in reaching their conclusions in each of the two appeals that there was no exempt licence, they misapplied those principles to the facts as found by them.

Mr King submitted that the Tribunal’s findings relevant to whether there was a exempt licence within Article 13B(b) set out in paragraphs 29 and 30 in Holland (and summarised and commented upon at paragraphs 32 to 34 above) and in paragraphs 21 to 24 in Vigdor (and summarised at paragraphs 43 to 45 above), insofar as they are findings of fact, did not justify the conclusion reached. Reduced to their essentials, Mr King made the following points. First, given the terms of the written agreement in Holland and of the equivalent agreement in Vigdor, there was no justification for the conclusion that a stylist did not have and was not entitled to exercise the right to exclusive occupation of the area allocated to her by the agreement (including a right, if necessary, to exclude anyone else from using the chair or chairs allocated to her) because it might be difficult to identify on the ground precisely what the area was that had been allocated to that stylist. Second, the fact that it could not be said with certainty what the boundaries on the ground were of the stylist’s allocated area did not mean that that stylist did not have an allocated area at all: there would be an irreducible minimum, for example the chair or chairs, that was unquestionably within the area allocated to that stylist. Third, insofar as the Tribunal found that the stylist could not exclude anyone else from using her area, that was a conclusion of law which had no justification in fact. Fourth, the fact that other stylists and their clientele, including Mr Holland when acting as a stylist, might be entitled to and did cross a particular stylist’s area did not detract from such exclusivity of occupation since, as paragraphs 24 and 25 of the ECJ judgment in Temco showed (referred to in paragraph [19] of Denyer at point (8) of Briggs J’s summary), a licence was not prevented from being an exempt licence merely because the licensee’s use is subject to restrictions or because part of the area let might be used in common with others. In Denyer Briggs J had observed (at paragraph [24]) that “Proof of occupation of demised premises is not undermined merely by evidence that persons other than the tenant had a right of way over the locus in quo or a right to inspect.” Fifth, there was no finding that indicated that such joint use by other stylists and their clientele extended to the irreducible minimum part of the area allocated to the stylist. Sixth, the fact that in Holland, in the circumstances defined by clauses 5.3 and 5.4 of the agreement, Mr Holland (as licensor) was specifically authorised to use the area allocated to the stylist and that, in Vigdor, the self-employed stylists used each other’s chairs while those others were absent and that Vigdor’s own employees used such chairs if vacant, did not mean that the stylists did not have exclusive occupation of their respective areas. See again Temco at paragraphs 24 and 25. In this regard, Mr King compared Marselisborg (Case C-428/02) (3 March 2005) with Walderdorff v Finanzamt Waldviertel (Case C-451/06) (6 December 2007). In Marselisborg, but for the application by analogy of one of the exceptions to the exemption conferred by Article 13B(b), the ECJ considered that a water-based mooring berth in a harbour would fulfil the definition of immovable property within the meaning of that article notwithstanding that the licensor was entitled to allocate the mooring berth to a third party during the temporary absence of the berth’s licensee. The limited right of temporary use by the licensor of the mooring berth did not detract from the necessary need for exclusivity. In Walderdorff by contrast, because the grantor of fishing rights to an angling club in specified waters reserved to herself and one guest per day the right to fish in the same waters, the ECJ held that the necessary requirement of exclusivity of occupation was missing. The fact that the angling club had to allow the grantor (and the person authorised by her) to enjoy the same access, enjoyment and use of the fishing waters was inconsistent with the need for exclusivity. He submitted that the limited right of use by Mr Holland of the allocated area pursuant to clauses 5.3 and 4 of the agreement was on the Marselisborg side of the line.

He submitted that Temco showed that the sharing of premises by three companies, without any allocation of the property as between the three (which was the situation in Temco), did not have the consequence that each licence lacked the necessary requirement of exclusivity. The facts in Holland and Vigdor were, he submitted, to that extent a fortiori in that each stylist had an allocated area even if the boundaries of each area could not be determined with precision and another stylist and her clientele could cross that area.

The Tribunal’s decision whether in each case there was an exempt licence involved a mixed question of fact and law. An appellate court must therefore proceed with caution before finding, in the absence of some misdirection of law, that it was one that the Tribunal should not have reached. I bear in mind the warning, repeatedly made in the authorities, that sitting in an appellate capacity I should not interfere if the decision was one which the Tribunal, properly directed, could have reached merely because I might have reached a contrary conclusion on the Tribunal’s findings. I also bear in mind, as applicable to the question which the Tribunal had to answer, the observations of Lord Walker of Gestingthorpe in College of Estate Management v Customs and Excise Commissioners[2005] UKHL 62, [2005] STC 1597 (“College of Estate Management”) at [36] that:

Adopting that approach I am of the view that the overall conclusion in each appeal - that there was no exempt licence - was one which the Tribunal were fully entitled to reach.

The Tribunal were entitled, indeed bound, to consider how the agreements between the owners and stylists operated in practice. In Vigdor, the Tribunal noted that the stylist’s area-floorspace was not defined in the agreement and inferred that exclusive use of the floorspace was not part of the arrangement between Vigdor and the stylists. On a fair reading of the decision in that case, the Tribunal, in my view, were entitled to consider that the only area that could possibly be identified as exclusive to a given stylist was the chair itself. They found that the stylists were free in practice to use the empty chair of another stylist if that other stylist was absent. They also found that it was a matter between the stylists whether and to what extent they swapped their chairs and that Vigdor itself was in the habit of using an empty chair without consulting the self-employed stylist whose chair it was. They noted that when the salon was flooded “which was frequent” chairs upstairs would be made available to the affected stylists. Overall the state of affairs described by the Tribunal was one which, in my view, amply justified the conclusion that, looking simply at the Article 13B(b) issue, there was in reality no exempt licence.

The position in Holland was less clear cut. Insofar as the agreement in that case sought to set out the area allocated to the stylist, the area was incompletely defined. It was also undifferentiated on the ground. It was quite different from a specified room, or a clearly defined kiosk or even a particular shop counter. The Tribunal considered that the licence each stylist enjoyed was, in the words of Lord Nicholls in Sinclair Collis [2001] STC 989 at paragraph [35], “more naturally to be regarded as a licence to use land rather than a licence to occupy land”. The key finding leading to that conclusion was the freedom in practice of anyone in the salon to cross over a stylist’s allocated area, insofar as that area could be identified on the ground. In evaluating that conclusion it is necessary to consider the position as a matter of common sense. From the floor plan attached to the agreement in evidence the chairs were in close proximity to one another in what was an open-plan arrangement which was shared with a reception and waiting area and which possessed, at the narrower end of the room, a small space set aside for hair washing etc. The salon was for the use of the stylists, their clientele and support staff. In my view, the Tribunal were entitled to conclude that what each stylist received was no more than a licence to use the chair allocated to that particular stylist and find, echoing paragraph 22 of the Advocate General’s opinion Temco, that the stylist did not enjoy a monopoly over the area, so far as ascertained, which had been allocated to her by her agreement. I certainly do not consider that any misgivings that I feel about the ampleness of the findings of fact or the sufficiency of the reasoning should lead me to upset their conclusion on this issue.

I am also of the view, for what the point is worth, that the Tribunal were entitled to consider that the stylists had, if anything, a lesser status than the three co-occupying companies in Temco. The point which Mr Singh emphasised about the decision in Temco was that, although the three companies shared the property in question without having some part of it allocated exclusively to any one company (as distinct from the other two) that state of affairs was one which arose by virtue of the agreements entered into by the lessor company with the occupying companies which, moreover, were companies sharing the same management. Here, by contrast, the freedom of other stylists and their clientele to cross a particular stylist’s allocated area happened as a matter of routine practice without the stylist preventing or feeling able to prevent it; it did not occur by virtue of any restriction in the particular stylist’s agreement or by virtue of some general right in law. Given the layout of the salon, it was bound to happen.

A convenient starting point is, once more, a judgment of Briggs J, this time in Tumble Tots (UK) Ltd v Revenue and Customs Commissioners[2007] EWHC 103 (Ch); [2007] STC 1171 (“Tumble Tots”) where he summarised the applicable principles. I can do no better than set out what he said (at [11]):

Mr King questioned the accuracy of that summary in two respects. The first was Briggs J’s seventh point. There is, said Mr King, a further requirement for a service to be regarded as ancillary to a principal service. That is that the ancillary service should not take up more than a marginal part of the consideration. He relied for this on Madgett and Baldwin (Cases C-308/96 and C-94/97) [1998] STC 1189 and on the reference to that decision in the judgment of the ECJ in Finanzamt Heidelberg v Ist (Case C-200/04) [2006] STC 52 (“Heidelberg”) at paragraphs [26] to [28]. I see force in the submission but I do not need to decide the point since neither side has suggested that, if there is a single supply, it is because there is a principal element to which the other elements are no more that ancillary, ie are a means of better enjoying the principal element of the supply.

The second of Mr King’s challenges was to Briggs J’s ninth point, in particular his statement made in reliance on what was said by Warren J in Byrom (t/a Salon 24) v Revenue and Customs Commissioners[2006] EWHC 111(Ch); [2006] STC 992 (“Salon 24”) at [46] - [48] and [51] that where there is a single supply that supply may for VAT purposes have a unique character enjoyed by neither (or none) of its constituent elements. Mr King submitted that that proposition has no support in Community Law jurisprudence and indeed was contrary to what was said in Levob Verzekeringen BV Staatssecretaris van Financien (Case C-41/04) [2006] STC 766 (“Levob”). What Briggs J should have stated in the ninth point of his summary was that the character for VAT purposes of a single supply made up of more than one element must (not may) be that of its predominant element.

Mr King’s challenge was not simply to the formulation by Briggs J of his ninth point which, as I have mentioned, was based on what Warren J had concluded in Salon 24 but also, and more particularly, to the reasoning which had led Warren J to that conclusion.

In Salon 24 the taxpayers controlled a massage parlour from which self-employed women offered their services to clients. The building comprised toilet facilities, a day room or lounge for use by the masseuses awaiting their clients, a changing room, a shower room (which contained a washing machine and drier), a seating area for clients awaiting masseuses’ services, three or four rooms in which masseuses entertained clients, and an additional room for masseuses to entertain their clients. The taxpayers provided basic bed linen and towels. They entered into written contracts with masseuses wishing to offer massage services under which the masseuse paid “rent” for a room on days chosen by her. The taxpayers advertised the services of the masseuse. They also offered parking for customers and employed a receptionist and were responsible for the security of the premises and for cleaning and maintaining them and for heating and lighting. The tribunal below dismissed the taxpayers’ appeal against the Commissioners’ decision that the taxpayers made standard-rated supplies for the purposes of VAT. The tribunal held that the supply by the taxpayers was not of an exempt licence to occupy land but was a single supply of a package of elements of which the dominant part was the taxable supply of services to which an incidental part was the supply of a room. The taxpayers’ supplies were therefore standard-rated. The taxpayers appealed but their appeal was dismissed by Warren J.

It was common ground between the parties in Salon 24 that there was only one supply, not a series of separate supplies. The question therefore was how that single supply was to be classified for VAT purposes. It also appears to have been common ground between the parties that, at any rate viewed separately from the rest of what the taxpayers supplied, the grant to the masseuses of the right to use a room in which to entertain their clients was capable of amounting to an exempt licence to occupy land under item 1 of Group 1 of Schedule 9 to the 1994 Act. The taxpayers contended before Warren J, as they had before the tribunal below, that the various services were ancillary to the licence given to each masseuse to occupy a room in which to entertain her clients.

In the course of his judgment, Warren J reviewed the relevant law on the categorisation for VAT purposes of a package of services. I can conveniently take up the review at the point where Warren J referred to the decision in Levob. He explained that that case concerned the importation of software which Levob had obtained from an American supplier, that the software concerned was basic software for use in the management of insurance contracts which Levob sold and that the software had been imported by Levob into Holland where, in accordance with the contract, it was customised and installed and Levob personnel trained in its use. He then explained the question which the national court in that case sought to have answered. That was “whether the provision of standard software developed, put on the market and recorded on a carrier by the supplier and its subsequent customisation by the supplier to the purchaser’s requirements, in consideration of the payment of separate prices …are to be regarded as two distinct supplies or as one single supply and, in the latter case, whether that single supply is to be classified as a supply of services”. This is what Warren J then said:

Mr King prefaced his criticisms of Warren J’s conclusions by submitting that cases of single supplies comprising several elements, are, at any rate on mainland Europe, extremely rare. As I have already mentioned, one of his challenges to each of the two decisions under appeal is that the Tribunal had been wrong to conclude that there was a single supply. He gave as an instance - indeed as the paradigm example - of a single supply comprising more than one element the case of a restaurant meal: notwithstanding that there is a supply of goods - the food itself - as well as the other services which go to make up a restaurant meal, the ECJ has ruled that there is in fact a single supply rather than separate supplies of the food and of the various services (for example, the supply of somewhere to sit, clean table linen, the services of the chef and of the waiter and so on) and that the single supply is of services. See Faaborg-Gelting Linien A/S v Finanzamt Flensburg (Case C231/94) [1996] STC 774 (“Faaborg-Gelting”). Restaurant meals apart, he submitted, there are very few reported cases in Europe of a single indivisible supply which it would be artificial to split and those that there are are encountered most frequently in the context of tax avoidance. Levob, he said, was such a case.

Mr King drew my attention to Heidelberg (which I have already mentioned in connection with its reference to Madgett and Baldwin). In Heidelberg the taxpayer organised programmes for students to be placed in a high school or college abroad for a period of months. When the programme took place in the USA the high school student was provided with a package comprising accommodation with a host family, return flights with a guide, board and lodging with the host family, classes at a selected high school, support from the partner organisation and its local representative during the visit, preparatory meetings and materials, and travel cancellation insurance. The arrangements for college students were slightly different. Mr King’s purpose in referring to the decision was to demonstrate that although supplied by the taxpayer as a package, in fact the travel element was accepted as a separate supply from the educational supply. One of the issues was whether the travel supply should be treated as ancillary in relation to the education service which the taxpayer supplied. The ECJ ruled that the travel to and stay in the host state did not represent a marginal share in relation to the educational service which the taxpayer supplied. There was no suggestion in that case, said Mr King, that the taxpayer made a single, indivisible supply which it would be artificial to split. The decision shows the seriousness with which the ECJ takes the principle (emphasised in Card Protection Plan) that each supply must be treated as an independent supply.

But, he said, if having considered the various elements of the supply, the court decides that there is a single indivisible economic supply which it would be artificial to split (for example, the restaurant meal) the court, in determining its VAT status, looks afresh at all the elements to identify which is predominant. He submitted that this critical stage in the process was made clear in paragraph 27 of the ECJ’s judgment in Levob where it was stated:

He submitted that the guidance provided by the ECJ in paragraph 27 of Levob, although directed to the question whether the supply is to be classified as a supply of services or as a supply of goods, applies no less to the question how the supply is to be treated for tax purposes, ie, whether it is to be standard-rated or exempt or, for that matter, zero-rated. He submitted that it could not be correct, taking a hypothetical example, to give to a single indivisible supply made up of several elements all of which, individually, are exempt (for example, a supply made up of a land element and of insurance introduction and financial intermediary services) a label or description which does not attract any kind of exemption. He submitted that, insofar as Salon 24, Tumble Tots and Denyer suggest that such a supply may attract a “description which reflects economic and social reality” (the phrase used by Warren J in Salon 24) or that, in the words of Briggs J in Tumble Tots, “it may have a unique character enjoyed by neither of the constituent elements” of the supply, they are incorrect.

He submitted that it was incorrect to approach the question of categorisation by asking the question: how can the overall supply be best described or labelled and, having answered that question, see whether the description or label is to be found in any list of exemptions. There was, he submitted, no warrant in ECJ jurisprudence for such an approach. Indeed to do so is to repeat the error identified by Nolan LJ in BNCC v Customs and Excise Commissioners [1993] STC 702. In that case, BNCC was set up and funded by the government of Bophuthatswana (established by the then regime in South Africa) to carry on such activities as might have been carried on by a diplomatic mission if the government had been recognised internationally. The Commissioners assessed BNCC to VAT on the basis that it had made a single standard-rated supply of diplomatic services. BNCC appealed unsuccessfully to the Tribunal contending that it had supplied a number of separate services to the government, some or all of which were zero-rated. The Tribunal dismissed the appeal holding that there was a single commercial relationship between BNCC and the government and that BNCC had provided a single supply of services of the sort that would be supplied by an accredited diplomatic mission. BNCC successfully challenged that decision on appeal to Rose J. The Commissioners in turn appealed his decision. The Court of Appeal dismissed the further appeal. In the course of his judgment, Nolan LJ, with whom the two other members of the court agreed, said this (at page 708):

He accepted that the test for determining what precisely is meant by “predominant” was not something that ECJ jurisprudence had spelt out although he submitted that the matter was to be looked at from the point of view of the consumer, the recipient of the supply.

Mr Singh’s submission, in a nutshell, was that, having correctly directed themselves in law as to the circumstances in which it is open to reach a finding of a single indivisible supply involving several elements, namely to look at the essential features of the transaction with a view to determining whether the constituent elements of what is supplied are so closely linked that they constitute a single economic supply which it would be artificial to split, the Tribunal were entitled in each case to conclude that there was a single supply. That being the correct approach in identifying whether there is a single (as distinct from a multiple) supply, it would, he said, be artificial when having to characterise that supply nevertheless to split out one of the elements and identify it as the predominant element. Ex hypothesi, such an approach would not accord with the economic reality of what were the essential features of the transaction. There was, he said, no misstatement of the law in Salon 24 or in the adoption of the position in Tumble Tots and Denyer. The Tribunal were therefore entitled to approach the question of characterisation of the single supply in Holland as they did. They did not undertake the same exercise in Vigdor although it is evident that they regarded the supply as of salon facilities. In any event, the Tribunal did not identify any element of the supply as predominant.

Mr Singh went on to submit, by way of alternative argument, that if, assuming the Tribunal correctly identified the supplies made in each case as a single invisible supply but incorrectly characterised that supply otherwise than by reference to its predominant element, the effective choice in each case was between a supply of land and a supply of services. In both Levob and Faaborg-Gelting the single supply was identified as a supply of services. The whole thrust of the Tribunal’s decision on each appeal was that there was a supply of services. It would therefore be open to this court to find that that was the nature of the supply even if it was not correct to characterise it as the supply of “access to an up-and-running hairdressing and styling salon” or, more simply, “the services of a hairdressing business” (as the Tribunal characterised the supply in Holland).

I am quite willing to accept, as Mr King submitted, that instances of a single supply comprising a number of elements which it would be artificial to split may be extremely rare in mainland Europe. But that does not mean that I should approach a supply containing several elements with a predisposition to conclude that it is a series of separate supplies. It is simply a question of applying the test laid down by the ECJ in Levob (at [22]) and asking myself whether the elements or acts supplied “are so closely linked that they form, objectively, a single indivisible economic supply which it would be artificial to split”. Faaborg-Gelting (the provision of a restaurant meal) was such a case. So also was the administration of a drug to a patient in Beynon (Dr) and Partners v Customs and Excise Commissioners[2004] UKHL 53, [2005] STC 55. That was analysed as a single supply of medical services and not the supply of a drug and the separate supply of medical services. Likewise the decision in College of Estate Management where it was held that the provision of distance-learning courses where the college provided education and training through printed materials, preparation and submission of assignments, and personal face-to-face teaching services constituted a single supply of educational services and not separate supplies of educational services and goods (the printed materials).

What then of Mr King’s criticisms of Warren J’s analysis of the law in Salon 24?

Having carefully considered that analysis I am not willing to say that Warren J was wrong to conclude (in paragraph [46]) that a supply comprising two or more elements which are so closely linked that they form objectively a single indivisible economic supply may attract a different tax treatment from that which would be attracted by even the main element within the supply and that (see paragraph [70]) it is open to the court to characterise it by a description which reflects its “economic and social reality”. As Warren J’s analysis has demonstrated (at paragraphs [44] to [46]) courts at the highest level, at any rate in this country, have been willing to characterise a single supply made up of several elements by an element which either is not, or may not, be the principal element within the overall supply.

That said, I certainly do not consider that the question is one which is altogether “acte clair”. On the contrary, I am troubled by it. That does not mean that I should direct a reference to the ECJ for a ruling on the point, as Mr King sought to persuade me to do if I did not accept his core submission that the treatment of the supply has to be determined by it predominant element or if I entertained any doubt as to the correctness of Warren J’s approach to the matter in Salon 24. I do not consider it is appropriate to direct a reference for several reasons. First, having upheld the Tribunal’s decision in each case that there was no exempt licence element in what was supplied, the question does not arise and therefore it is not necessary to resolve it. Second, given Warren J’s careful analysis of the relevant law and Briggs J’s acceptance of it in Tumble Tots and subsequently in Denyer, it would I think be for a higher court to direct a reference in any event. Third, unless there is a finding by the Tribunal that the licence element was the predominant element of the overall supply, assuming it was a single supply, and, as I shall explain, there was no such finding in either Holland or Vigdor, it does not seem to me to matter how the supply is described. For unless it takes the character of an exempt licence and, on Mr King’s argument, it can only do so (assuming the package constituted a single supply) if the licence is the predominant element, it is not suggested that there is any other exemption that applies, or that the overall supply is for some reason to be treated as zero-rated. The fact therefore that the Tribunal described the supply in Holland as “the services of a hairdressing business” rather than in some other way does not matter.

Mr King’s criticism of the Tribunal’s decisions in both Holland and Vigdor was that they failed to list explicitly the features which led to the conclusion in each case that there was such a supply. “Indivisible”, said Mr King, cannot simply mean indivisible under the contract in question, otherwise the question would be self-answering since nearly all packages of supplies offered as a single package would have that character; the question rather is whether the supplies are in principle divisible. He submitted that the Tribunal gave no weight to the fact that the two separate elements, licence and services, were charged separately. Holland and Vigdor, he said, were not so much cases of a “supply which it would be artificial to split” as cases where two or more supplies were aggregated by the Tribunal.

He went on to point out that the matters which, in paragraphs 37 and 38 of their decision in Holland, the Tribunal had identified (for example, that the stylists had joined the salon to have access to more than a chair and space, that they needed the facilities listed in the schedule to the written agreement and could not have carried on their business without all of the facilities listed in that schedule, that they stated that they were indifferent to how the fees payable under the agreement were described, and that they wanted “a joined-up supply of the whole range of the constituent elements” supplied under the agreement) could equally be said on the vast majority of occasions that a customer purchased a package of supplies. The fact that a customer needs, or is likely to need, the supplies which are provided does not mean that they are in law a single indivisible supply. Equally irrelevant is the fact that without the range of facilities made available under the agreement the stylist could not carry on her business: it would be a very a rare business which needs only one supply. The fact that lots of different things which a stylist needs are supplied within a single package does not mean that they become an indivisible package. The same, he submitted, could be said of a person renting serviced premises: he or she is likely to need the services for which the service charge is paid; that fact, or the fact that they are supplied together with the accommodation itself, does not make them a single indivisible supply. The fact that the stylists are indifferent to how the charges under their agreements are structured is likewise irrelevant: the same could be said of any package of supplies where the package consists of several separate payments. Equally, he said, the fact that the stylists wanted a “joined-up supply of the whole range of services” could be said of most persons buying several services as a single package. Indeed, whenever several supplies are sold as a package, the overall supply is likely to be all or nothing. The letting of a shop is useless without heat, light and perhaps water and, equally, having them is likely to be useless without the accommodation in which to use them. But it does not follow, he said, that in supplying heat, light and water together with the shop premises, a single indivisible supply is made which it would be artificial to split.

Coming to Vigdor, Mr King pointed to the particular matters referred to by the Tribunal in paragraphs 26 and 27 of their decision which, he said, appeared to have influenced the Tribunal in reaching their decision. They were the enumeration in paragraph 26 of the various facilities which the stylists wanted and were supplied under the licence agreement, the Tribunal’s reference to Vigdor “exploiting its managed salon by making chair space available to self-employed stylists and by giving them the facilities required to enable them to conduct their businesses”, the fact that the total amount payable under the agreement was a package, the absence of any separate negotiation of the two elements of the package, and the fact that the stylists would not be able to comply with their undertaking to operate their businesses in the salon without the floorspace, while the licence of the floorspace would be useless to both sides unless the stylist was committed to work there. Mr King submitted that these matters were all irrelevant to the finding of a single indivisible supply which it would be artificial to split; they did not entail the conclusion that the supply was indivisible since the same could be said of many a package of services made available for a consideration to enable someone to carry on a business. Mr King also submitted that, in paragraph 26 of Vigdor, the Tribunal were wrong to state that “the VAT system would be distorted if what was in substance a single service from an economic point of view were artificially split”. He submitted that that was the wrong test.

In my judgment, the various findings of fact made by the Tribunal in each of the two decisions, not limited to the matters identified in the particular paragraphs to which Mr King referred me, amply justified the Tribunal’s conclusion, in each case, that there was a single indivisible economic supply which it would be artificial to split. The essence of the matter is that the facilities supplied by the taxpayer in each case, including the licence to use a chair and space in the salon, all combined to enable the stylists to carry on business as self-employed hairdressers. The various facilities were closely interdependent in that the provision of one (for example the chair) was of little or no practical utility without the provision of the others. All were supplied pursuant to a single agreement. I detect no mistake in law in the Tribunal’s approach to the question. In particular, I do not consider that the Tribunal misstated the appropriate test in Vigdor.

I have already concluded that, although I am troubled by the point, I am not willing to differ from Warren J’s approach to this question in Salon 24 and therefore to differ from the willingness of Briggs J in Tumble Tots and in Denyer to adopt and follow that approach. I have noted, and repeat, that there is in any event no finding in either Holland or Vigdor that the licence to occupy was the predominant element of the overall supply. I should also add that there is no basis in their findings for me to conclude that the Tribunal should have concluded that that was the predominant element of the supply in each case. If the licence to occupy was not in any event the predominant element, the Tribunal cannot be criticised for failing to find that the single supply should have taken its character from that element. I therefore see no reason to criticise the Tribunal’s characterisation of the supply in Holland as that of an “up-and-running hairdressing and styling salon” or “the services of a hairdressing business” or, insofar as they did in Vigdor, as that of “salon facilities”.

There is another reason why, in my judgment, the Tribunal came to the correct conclusion in both appeals on this issue. It concerns a wider aspect of the correct identification of an exempt licence within Article 13B(b).

In Temco the ECJ had emphasised, in paragraph 26 of its judgment, the need for the national court to consider all the circumstances of the transaction in question when assessing whether the transaction can be treated as a letting of immovable property within the meaning of Article 13B(b). In paragraph 27 it also emphasised the need for the national court to establish whether the contract giving rise to the transaction has as its essential object the making available, in a passive manner, of premises or parts of buildings in exchange for a payment linked to the passage of time or whether it gives rise to the provision of a service capable of being categorised in a different way. This was a reference back to paragraph 20 of the judgment where the ECJ distinguished between “a transaction comprising the letting of immovable property which is usually a relatively passive activity linked simply to the passage of time and not generating any significant added value” and “other activities which are either industrial or commercial in nature, such as the exemptions referred to in Article 13B(b)(1) to (4) of the Sixth Directive, or have as their subject matter something which is best understood as the provision of a service rather than simply the making available of property…”. The former would qualify as a letting of immovable property; the latter would not.

This distinction was relied on by the Commissioners before Warren J in Salon 24 when seeking to uphold the ruling of the tribunal below. See paragraphs [52] to [55] of Warren J’s judgment. At paragraph [72] of his judgment Warren J stated that if there were serious doubt about the correct categorisation of the supply he would have adopted the submissions made on behalf of the Commissioners summarised in those paragraphs.

This was also a matter which, as I read what they said, the Tribunal had in mind in paragraph 23 of their decision in Vigdor (set out above) and, not least, in their conclusion in paragraph 24 where they stated:

I am of the view that, on the findings of fact in Vigdor, this was a conclusion which the Tribunal could justifiably reach. The decision in Holland contains no similar reference since the Tribunal felt able to conclude that the necessary attribute of exclusivity of occupation (if there was to be an exempt letting) was absent. But it is abundantly plain from the Tribunal’s conclusions set out in paragraphs 38 to 39 of Holland that, looking at the matter from the “economic point of view”, the Tribunal saw “every one of the constituent elements as essential contributors to a single supply being made by Mr Holland to the stylist”, being the supply of “the service of a hairdressing business”. In my judgment, this is a finding that, considering all of the circumstances of the arrangements between Mr Holland and the self-employed stylists, the essential object of those arrangements was not simply to make available, in a passive manner, a part of the salon - the so-called “designated area” - to the stylist in exchange for a payment linked to the passage of time but a more general activity best understood as the provision of a service capable of being categorised in a different way.

The essence of the matter, as it seems to me, is that, as the relevant jurisprudence has made clear, the exemption (which is to be strictly interpreted) does not extend to a licence to occupy land which is but one element of a package of supplies made by the taxpayer/lessor to his customer in consideration of a payment or payments by that customer where the supplies in question are commercial in nature or are best understood as the provision of a service and not simply as the making available of property. If that is the nature of the supply - a service rather simply the making available of property - there is no exempt licence: the licence element in the supply is standard-rated. Whether the resulting supply is properly to be regarded as a single indivisible economic supply which it would be artificial to split and, if so, how that supply is to be characterised for VAT purposes are issues that do not matter if all of its constituent elements are in any event standard-rated.

As I have mentioned, Denyer was, in a number of material respects, similar to the circumstances in the two appeals before me. It concerned the grant by the taxpayer to hair stylists, trading as self-employed hairdressers from the taxpayer’s salon, of facilities to enable them to carry on their business, including the allocation to the stylists of an area in the salon to be used exclusively by that stylist containing a hairdressing chair, and also the provision of clean towels, shampoos and other consumables. For all of this the salon owner made three charges: (1) a “chair rent”, (2) a small sum per customer by way of contribution towards rates, heat, light, water, use of the telephone and laundering towels, and (3) separate charges for such consumables as the stylist chose to purchase from him. The stylists provided their own tools. The layout of the salon was in substance no different from the layout in the two appeals before me. The tribunal from whose decision the appeal to Briggs J had come had concluded, first, that among the services supplied to each self-employed stylist was a licence to occupy land within the meaning of item 1 of Group 1 of Schedule 9 to the 1994 Act (ie an exempt letting within the meaning of Article 13b(b)) and, second, that the supply to the stylists of other services by the taxpayer was only made available as “adjuncts to the use of the allocated areas” so that the resulting supply followed that of the exempt letting. There was no dispute between the parties to that appeal that the chair and the area immediately surrounding it were exclusively enjoyed by the stylist to whom they were provided. There was no issue over the applicable law, either as to the principles for the correct classification of a supply comprising more than one element as a single supply or, as I read the judgment, as to the principles applicable to determining whether there was an exempt letting within the meaning of Article 13B(b).

Because there was no issue over the tribunal’s finding that each stylist had exclusive enjoyment of the chair and area immediately surrounding it allocated to that stylist (although there was a last minute challenge to that finding which Briggs J described as too late to make), the sole question was the correct classification of the package of services supplied to each stylist. The grant of the exclusive right to use a particular chair and the area immediately surrounding it formed what Briggs J described as “an important part” of that supply. The tribunal below had concluded that the supply to the stylist of the right to have towels laundered and consumables provided was ancillary to the principal supply of the right to exclusive use of the chair, coupled with the provision of heat, light, water and the use of a telephone. Alternatively, it concluded that there was “an over-arching single supply of land”.

Briggs J disagreed with those conclusions. His view was that the tribunal had taken what he described as “an overly narrow view” of the package as a whole with the result that they “over-rated the provision of the exclusive use of the chair and allocated area as being predominant”. Accepting that the package was, as he put it, “at the minimalist end of the spectrum, so far as concerns the provision of shared facilities” he nevertheless concluded, having referred to an analysis of the position in another self-employed hairdressers’ tribunal decision (Mallinson and Woodridge v Revenue and Customs Commissioners and Mould v Revenue and Customs Commissioners (2005) VAT Decision 1987), that the package supplied could not properly be categorised as the letting of immovable property. It is instructive to set out exactly what Briggs J said:

Mr King strongly criticised that reasoning of Briggs J. In my respectful view, however, the underlying point which Briggs J was making was simply that the stylists needed the use of the salon as a whole, and not just their respective chairs and allocated areas, within which to conduct their businesses as self-employed hairdressers and that, as the penultimate sentence of paragraph 46 states, the services supplied by the taxpayer comprised a package of the facilities required by the stylist to carry on his/her business of which the provision of an exclusive chair and allocated area formed a part such that it was not appropriate to characterise the resulting supply - ie the package as a whole - by reference to just one, or even the most important, of its elements.

Mr King invited me to distinguish Denyer on the basis that the arguments which he has addressed to me were not put to Briggs J. I am not at all sure that they were not. I was told, and accept, that Briggs J had the Tribunal’s decisions in Holland and Vigdor before him in which, albeit very briefly, the principal submissions of Mr King on this appeal are summarised. In paragraph [39] of his judgment in Denyer Briggs J referred to other tribunal decisions relating to hairdressing salons including, as paragraph [40] made clear, the decision in Taylor. But, whether I am right or wrong in thinking that Briggs J was aware of the arguments put before the Tribunal in Holland and Vigdor, I am not persuaded that Briggs J misdirected himself in law. On the contrary, his decision seems to me, with respect, to be entirely correct. His judgment demonstrates why hairdressers’ arrangements such as those arising on these appeals cannot property be characterised as the letting of immovable property.

I should add the following. In that case Briggs J accepted that the package was to be regarded as a single supply of the range of facilities requisite for the stylist to carry on business as a hairdresser, accepted that the facilities supplied were not to be regarded as a separate supply for VAT purposes and accepted that the overall package was not to take its identity for classification purposes from any one of its constituent elements, even its most important element. His analysis is consistent with the alternative approach to which I have referred whereby, viewing the transaction as a whole, what the taxpayer supplies is best understood not as simply the making available of property but as the provision of a service capable of being categorised in a different way.

I should also add that (other than Denyer until the appeal was allowed by Briggs J) Taylor is the only tribunal decision which, so far as I am aware, went the other way. But the position in that case was significantly different. There, the only supply made by the taxpayer was of the entire salon in question (along with hot and cold water and the like) to the two stylists who themselves provided all of the remainder of the facilities which they needed to carry on their business as self-employed hairdressers (with the possible exception of laundered towels). There was no sharing of the salon except by the two stylists. Although they were not in partnership with each other but were, as I understand it, each self-employed, the arrangements, as described in the decision, suggest a close degree of co-operation between them.

The appeals fail.