20277
VALUE ADDED TAX — taxi firm providing contract hire and casual on demand work — parties agreed Appellant  acted as agent for casual hire — whether principals for contract hire — yes — supply of administration services and radio hire to taxi drivers an expense of the business — no — VAT chargeable on administration services and radio hire to taxi drivers  — appeal  dismissed

MANCHESTER TRIBUNAL CENTRE

ARGYLE PARK TAXIS LIMITED	Appellant

- and -

THE COMMISSIONERS FOR
HER MAJESTY’S REVENUE AND CUSTOMS	Respondents

Tribunal: David Porter (Chairman)
Peter Whitehead (Member)

Sitting in public in Manchester on 6 June 2007

Nigel Gibbon, a solicitor, instructed by the Appellant
 
Jonathan Cannan, of counsel, instructed by the Acting Solicitor for HM Revenue and Customs for the Respondents 

© CROWN COPYRIGHT 2007

DECISION

1.	    Argyle Park Taxis Limited (“the Appellant”) appeals against the assessment dated 5 April 2005 in the sum of £153,824 (amended to £153,477 on 13 September 2005).  The sum arises from the “settle income” (being the charges raised by the Appellant to their taxi drivers for the use of the Appellant’s radio, staff and other facilities) for various periods from 01.12.01 to 31.10.04 for the contract work provided for local authorities, hospitals and others.  The Appellant states that they act as principals for the taxi drivers for this work and they do not therefore provide a supply of “settle income” which gives rise to a VAT liability.  The Commissioners state that the Appellant acts as agents for the contract work and VAT is chargeable on the “settle income”.

2.	Nigel Gibbon appeared for the Appellant and called William Stevenson and John Dunne, directors of the Appellant, who both gave evidence under oath.  He also provided a bundle for the tribunal. Jonathan Cannan, of counsel, appeared for the Commissioners and provided a further bundle for the tribunal.

3.	We were referred to the following cases:
•	Triumph and Albany Car Services (LON/80/115)
•	Akhtar Hussain t/a Crossley Private Hire Cars (16194)
•	F G Carless v C & E Commrs ((1993) STC 632)
•	Camberwell Cars Limited (10178) and (17376)
•	Kieran Mullin Limited v C & E Commrs ((2003) STC 274)

4.	Nigel Gibbon and Jonathan Cannan agreed that it was not necessary for the tribunal to consider the amount of the assessment as the Appellant are able to produce details of their “settle income” sufficient for the correct assessment to be calculated.  Nigel Gibbon also confirmed that the tribunal need not concern it self with the level of the penalty as the penalty would stand or fall with the decision.

The Facts
5.	William Stevens gave evidence under oath and stated that the Appellant was formed as a merger of two businesses Argyle and Park Taxis.  He had been a director of Argyle Taxis and had worked in the merged company for approximately 14 years.  The Appellant employs staff, who work out of a central office, they allocate work in the form of a telephone booking system, and provide two way radios to call their drivers.  There is no requirement for the drivers to return their radios when they are on holiday or not working.  The drivers provide their own cars, fuel and pay the Appellant for the use of the radio, staff and the other administration overhead.  The drivers pay “settle income” of £80 to the Appellant for the casual work and £72 for the contract work.  As far as the casual work is concerned the Appellant, through its staff, advise the drivers over the radio, of any customer who telephone for a taxi service.  Usually the nearest driver to that customer provides the taxi.  The customer pays the driver, who in turn pays the Appellant £80 each week out his fares.  Both parties agree that the Appellant acts as agent for the drivers for the casual work and that VAT is to be charged on the £80.  It was unclear at the hearing whether VAT had been charged on the £80 but it was agreed by Nigel Gibbon that it should be so charged. 

6.	The Appellant has successfully tendered for a variety of contract work.  The Tribunal was shown the tender documentation for the Wirral Hospital NHS Trust. It appeared that the tender arose from an ongoing quotation and Mr Stevenson was unable to say what the original contract had been.  He could only show that the costs for the various components of the contract had been increased.  The Wirral Hospital used several services provided by the Appellant.  It might require that the Appellant arrange for patients to be collected from the hospital, or for the drivers to deliver blood and other medical prerequisites.  Mr Stevens produced a schedule to the Tribunal which is provided to the drivers intermittently identifying the costs which are to be charged for the various trips for the Wirrall NHS Trust.  Some of the journeys can be carried out more quickly by using the motorways, but that involves a higher mileage and cost.  The drivers’ income, and that of the Appellant, for any particular journey, is fixed at a rate based upon the most economical route.

7.	When the journey is completed the driver obtains a ticket from the customer identifying the price of the journey.  The driver gives a copy to the Appellant each day that is worked The Appellant calculates the amount due to the driver and pays him/her within two days of receiving the ticket but then deducts a weekly sum of £72.  The Appellant refers to this as the “settle income”.  John Dunne confirmed that if the contract customer failed to pay the invoice for work done on the due date or not at all, the Appellant stood the loss.  There would be no prospect of asking the drivers to refund the unpaid fare.  He also insisted that the radios when used for the contract work were provided solely for the benefit of the Appellant, who in any event owned them.

8.	In addition to the work for the Wirral Hospital the Appellant also provides cars for the CPS, to take witnesses to and from court; for the Mersey Regional Ambulance Service, who sometimes also require a larger vehicle to meet the needs of specific patients being transported; Tranmere Rovers Football Club; Solicitors etc.  All the contracts have been negotiated by the Appellant.  The Appellant is however selective as to which of the drivers should drive for the various contract work as the work can be sensitive in the cases of the CPS and the solicitors.  There are some 140 drivers but it is clear that the Appellant has a list of specific drivers used for the more sensitive contract work.

Summing Up 
9.	Mr Cannan submitted that there was no difference in the way the taxi services are provided by the Appellant, whether this is to individual customers or taxi services provided to contract customers, who acts as agent for the drivers.  If the tribunal decide that the Appellant acts as principal for the contract customers this does not alter the fact that out put tax is chargeable on the “settle income” as this is a supply of the administrative services and the radios to the drivers.  The Appellant argues that, for the purposes of the contract customers the radios are used in the Appellant’s business for its own purposes and there is no supply to the drivers.   As a result, an apportionment is to be made when assessing the cost of the radios.  Mr Gibbon maintains that the Appellant has paid VAT on the entire price to the contract customers and there would be a double taxation liability if VAT is charged on the supply of the radios.  Mr Cannan submits that as the Appellant’s own the radios and presumably recovers the VAT on them when they are purchased there is no question of double taxation and there is clearly a supply by the Appellant to the drivers.

10.	Mr Cannan referred us to various cases but conceded that they were not altogether helpful as they all depended on their own unique facts.  He considered, however, that some basic principals could be derived from them.  In Camberwell Cars Limited (10178) the tribunal was referred to Commissioners of Customs and Excise v Mc Henry’s (Hairdressing) Ltd [1993] STC 171:

“The answer to the question to whom were the services being supplied depended largely on the relationship between the stylists and MacHenry’s. It was not therefore surprising that the tribunal concentrated on this factor. How the public or customer perceived this situation was and is not crucial or a determinative factor in the resolution of that issue …”.

 Camberwell Cars Limited (17376) dealt specifically with the payment made by the drivers to the company for the use of the radios and administration. In that case the “settle income” was calculated as a reduction of the amount that the driver had to pay to the company. It was agreed that the starting figure was £75. If the driver did sufficient contract work not only would he not have to pay the £75 but he could receive a bonus from the company. The tribunal thought that:

“… the drivers sees it (the amount deducted by the company) as a progressively reducing amount they have to pay in order to obtain their cash business”.

Section 5(2) (b) of the VAT Act 1994 provides that “anything which is not a supply of goods but is done for a consideration is a supply of services”.  The Tribunal decided that “the amount owing from the drivers calculated at the end of the week is consideration for services the Appellants have provided to the drivers”.  In Kieran Mullin Limited v C & E Commrs (2003 STC 274) Park J confirmed the proposition in McHenry’s in that the customers need not know the arrangement between the parties. The nature of the relationship depended on the contractual terms between the parties. 

11.	In the appeal before this Tribunal there is no significant difference between the casual customers and the contract work. The only difference is in the way that the drivers are paid, but that is not a difference of substance.  Both sets of customers are driven by the same drivers.  All the drivers are fully aware of the different procedures, even to the extent that they know that some of the drivers are preferred for the contract work.  There is no control over the hours that the drivers work.  The drivers’ perception is that they are supplied with the same radio and administration, irrespective of the type of work being undertaken.  Mr Dunne conceded that in reality there was little prospect of obtaining a refund from the drivers where the Appellant suffers the loss if the contract customers do not pay.

12.	Even if the tribunal decide that the Appellant is acting as a principal the Appellant is still supplying a service to the drivers of the use of the radio and the administration.  Section 5(2)(b) of the VAT Act 1994 confirms that “anything done for a consideration is a supply of services”.  The radios are supplied to the drivers as an overhead to accommodate both types of work.  It is not possible to apportion that between the contract and casual work the radios are used for both businesses. 

13.	Mr Gibbon submitted that there are substantial differences between the contract and casual work.  It is accepted that the Appellant acts as agent for the casual work and it acts as principal for the contract work.  In Akhtar Hussain t/a Crossley Private Hire Cars (16194) the Tribunal analysed the differences and came to the conclusion that the Appellant in that case acted as a principal.  There are a similar level of differences in this case:

(a)	Any failure to pay by the contract customers is not passed on to the drivers but is treated as a bad debt for the Appellant
(b)	The method of payment to the drivers for the contract customers is entirely different and is based on the average fares required by the Appellant.
(c)	The Appellant is selective in the drivers it chooses to use for some of its contract work
(d)	Although it may be of undue concern as to how the contract customers view the service, it is clear that the Appellant has had to negotiate the various contracts and under those contracts it is responsible for supplying the services.
(e)	The payment for the contract work is on a different scale and system. The drivers get paid every two days and the Appellant gets paid under the terms of the contracts sometimes beyond the agreed payment dates and suffers any loss accordingly.
There are substantial differences between the modus operandi of its casual and contract work and the Appellant acts as principal for the contract customers.

14.	As the Appellant is acting as principal the administrative overhead is a cost to the business and there is no necessity to pass the cost on to the drivers. As far as the radios are concerned, as the contract customers represent 80% of the turnover, 80% of the cost of the radios should not be subject to VAT. The radio is purchased by the Appellant and supplied to the drivers so that the Appellant, as principal, can use the radio to contact their drivers. Mr Dunne confirmed that he considered that the radios were being used for the benefit of the Appellant, when services are supplied to the contract customers.

The Decision
15.	We have considered the facts and the law and have decided that the Appellant is acting as principal when supplying the taxi services to the contract customers. We accept Mr Gibbon’s proposition that there is a difference between the two services. As Mr Cannan has said the case law depends on the facts in the individual cases. In this case the Appellant is solely responsible for obtaining the contract customers. It carries out substantial negotiations on an on-going basis with all the customers. It is concerned to see that the service to those customers is carried out effectively and to that end is selective as to the drivers it wishes to use. It has also worked out a complicated fare system which it insists that its drivers use. This means that the drivers receive a fixed fee for a particular journey, unlike when they take casual customers. The facts are not dissimilar to the case of Akhtar Hussain t/a Crossley Private Hire Cars (16194) which came to the same conclusion.

16.	What then is the position with regard to the “settle income” where the Appellant acts as principal? Mr Gibbon’s argument is ingenious. He says that as the work is being carried out by the drivers for the Appellant and that the radios costs represents 80% of the turnover, 80% of the costs of the radio should be allowed against the VAT liability. The rest of the “settle income” of £72 should not be subject to VAT in any event. Whilst we have some sympathy with that argument we consider it misses the point. 

17.	In Camberwell Cars Limited (17376) on similar facts Mr Hyman for the commissioners in that case contended that “the amounts due from the drivers to the Appellant are consideration for a supply of support services, such as advertising operating a telephone booking system and providing two way radios to the drivers”. We can see no difference in the facts of this case. 

18.	Section 5(2) (b) of the VAT Act 1994 provides that... “anything which is not a supply of goods but is done for a consideration is a supply of services”. We agree with Mr Cannan that the amount owing from the drivers from the contract customers calculated every two days is consideration for the services the Appellant has provided to the drivers. This is a separate and different supply from that provided by the Appellant to the contract customers. Other than to be told by Mr Gibbon that it follows the result and is payable by the Appellant if we fin against it. We therefore dismiss the appeal and make no award as to costs.

19.	We have not been asked to consider the position with regard to the penalty. As we have dismissed the appeal we confirm the penalty 

DAVID S PORTER
CHAIRMAN
Release Date: 26 July 2007
MAN/06/0755