Case No:  CH/2007/APP/0704

Neutral Citation Number: [2008] EWHC 1144 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Strand
London WC2A 2LL

Date: Tuesday, 29 April 2008

BEFORE:

MR JUSTICE LEWISON

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BETWEEN:

ARGYLE PARK TAXIS LIMITED
Claimant/Respondent
- and -

HM REVENUE AND CUSTOMS
Defendant/Appellant

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MR N POOLE (instructed by R G Legal Limited) appeared on behalf of the Claimant

MR J PUZEY (instructed by Treasury Solicitors) appeared on behalf of the Defendant
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Judgment

1.	MR JUSTICE LEWISON:  On 12 September 2007 the VAT Tribunal, sitting at the Manchester Tribunal Centre, dismissed an appeal by Argyle Park Taxis Limited against an assessment of VAT in the sum of £153,000 odd.

2.	Argyle Park Taxis Limited, as its name suggests, is a taxi company.  It deals with two kinds of business, contract business and casual business.  The Tribunal summarised the facts in paragraphs 5 to 8 of its decision.  Its summary was based on the evidence of two witnesses called by Argyle Park Taxis Limited, one whom the Tribunal variously called Mr Stevenson or Mr Stevens and the other one, a Mr Dunn.

3.	In paragraph 5 the Tribunal said:
“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.”

4.	The Tribunal then identify a number of the contracts which Argyle Park Taxis Limited had and describe the payment details for that kind of work in paragraph 7 as follows:
“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.”

5.	The assessment I have described related to what has been described as the settle income.  On the basis of the Tribunal’s finding, the settle income is £80 per week for casual work and £72 per week for contract work.  As the Tribunal recorded, it was common ground insofar as the casual work was concerned, that the drivers were the principals supplying taxi services for customers and Argyle Park Taxis Limited were acting as the drivers’ agents in providing work for them.  Thus the drivers’ payments of settle income in relation to casual work of £80 per week was properly chargeable to VAT.

6.	The Tribunal set out the issue, or what appeared to be the issue, between the parties in paragraph 1 of their decision as follows:
“The appellant states they act as principals for the taxi drivers for this work (I interpose to say that is the contract 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'.”

7.	That appears to concentrate the attention of the Tribunal on whether Argyle Park Taxis Limited was principal or agent in relation to the contract work.  In paragraph 15 the Tribunal decided, having considered both the facts and the law, that Argyle Park Taxis Limited was acting as principal when supplying taxi services to the contract customers.  They continued:
“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.”

8.	I might also add that it appears from paragraph 7 that the Tribunal accepted Mr Dunn’s evidence that if a contract customer failed to pay the invoice rendered by Argyle Park Taxis Limited itself then it was the company rather than the driver who stood the loss.  That is a further clear indication that the company was acting as the principal.

9.	In paragraph 16, the Tribunal refer to an argument which Mr Gibbon presented.  They describe it as ingenious which is usually the kiss of death to arguments and although they said they had some sympathy with it, they thought that it missed the point.  When they came to discuss the point, they referred in paragraph 17 to a decision of the VAT Tribunal in Camberwell Cars Limited and said they found no difference in the facts of the case.  The nub of their decision is in paragraph 18 which reads as follows:
“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.”

10.	Argyle Park Taxis Limited now appeals against that decision.  The appeal is restricted to a point of law.  For this purpose an error of law would include the making of a perverse finding of fact such that it must be inferred the Tribunal made an undisclosed error of law in order to arrive at that finding.

11.	In my judgment there is no overt error of law on the face of the Tribunal’s decision.  What Mr Poole, who appears on behalf of the appellant, attacks are essentially findings of fact.  They are findings of fact as to whether there was a supply by Argyle Park Taxis Limited to its drivers and if so, what was the consideration for it?  What Mr Poole relies on is the mischaracterisation by the Tribunal of the relationship between the appellant and the drivers who were performing contract work.  In effect, he says, that properly analysed on the facts found by the Tribunal, the only conclusion to which they could properly have come was that there was no supply by the appellants to its drivers to which the £72 weekly deduction could be attributed.

12.	He pointed out that the £72 was not a payment but was a deduction.  It was, he said, a retention by the appellant to cover the overhead of providing services to customers of the company rather than services to the drivers themselves.  The appellant could have arranged matters differently simply by paying its drivers less for the services which they carried out for the company in driving its contract customers.

13.	Having found that the appellant was the principal in relation to contract work, the Tribunal should have worked through the consequences of its own finding to arrive at the correct legal conclusion. 

14.	 As Mr Callum for the commissioners pointed out, the tax consequences of business arrangements depend on what those arrangements are.  Different arrangements may produce the same economic effects but have very different tax consequences.  That is what, after all, keeps many accountants, lawyers and tax consultants in business.  He pointed out that the drivers are self-employed whether they are carrying out contract work or casual work.  In fact, many drivers do both.  One of the essential tools he said of the self-employed drivers’ trade, whatever kind of work he does, is the radio and the facilities behind it.  If, therefore, a radio and the services standing behind it are provided by the appellant to its drivers, it is not realistic, he said, to distinguish between those drivers who drive on casual work alone and those who drive both on casual work and/or contract customers.  A radio and its support services are equally essential.  As for drivers who carry out contract work alone, he said that this is not something that was explored before the Tribunal and is not, therefore, a point which is open to the appellant in this court.

15.	As to that last point, it seems to me that the Tribunal did focus, or at least attempted to focus, on drivers carrying out contract work.  That was what the whole argument was about.  I have to say that, in my judgment, the Tribunal’s decision is unsatisfactory.  Paragraph 18 which contains the nub of their decision is, as both sides accept, garbled in its grammar and difficult to understand.  It appears on the face of it that the Tribunal have confused the payment made by the appellant to its drivers, calculated every two days, and the weekly deduction made in respect of contract work.

16.	The characterisation by the Tribunal of the issue between the parties in paragraph 1 of the decision would have led one to suppose that once the Tribunal had decided that the appellant acted as principal, the issue would be resolved in the appellant’s favour.

17.	In setting out the facts in paragraph 5, the Tribunal do not distinguish between two legal relationships in which liability for settle amounts arises.  Moreover, they do not distinguish between the payment mechanisms in the two cases.  In the case of casual work, the drivers pay the appellant out of money which they themselves have collected as principal from the customer.  In the case of the contract work, the appellant makes a deduction from what it would otherwise pay the drivers for services rendered by the drivers to the company.  The deduction is a flat rate deduction.  Moreover, the recitation of evidence in paragraph 7 of the decision does not clearly state what findings of fact the Tribunal made or how differences between the evidence recorded in that paragraph and the evidence recorded in paragraph 5 are resolved.

18.	In reaching its conclusion, the Tribunal relied heavily on the Camberwell case.  Sufficient understanding of the facts of the Camberwell case can be gleaned from paragraph 5 of the decision of the Tribunal in that case which reads as follows:
“A driver working for the appellant receives payments from the appellant in respect of work for account customers based on an agreed scale of charges which, as already mentioned, is lower than the scale paid by the account customer to the appellant.  If an account customer needs a driver, that takes priority over a cash customer.  A driver cannot refuse to take an account customer.  As part of the terms of his engagement, the driver participates in what the appellant describes as a bonus scheme.  This is a sliding scale of payments starting with a payment by the driver to the appellant of £100 if he does no account journeys in a week.”

19.	The Tribunal then set out the various deductions which could result in a payment being made by the company to the driver.  The important points about the Camberwell case was that although the appellant, Camberwell Cars Limited, carried out both account business and cash business, the cash business was for the profit of the drivers alone and the company’s profits were themselves made from the contract business.

20.	The question for the Tribunal in that case was how to characterise those payments.  The Tribunal in that case pointed out that the appellant company saw the payments as a reduction in what it would otherwise pay the drivers for account business but they expected that the drivers saw it as a progressively reducing amount which they had to pay in order to obtain their cash business.

21.	In paragraph 15, the Tribunal, in that case, came to its decision.  They said:
“The driver benefits from the appellant’s set up of telephone bookings and radio contact and is willing to pay for this for access to the cash business.  The reality, it seems to us, is that there are two separate payments, one by the driver to the appellant for the benefit of being provided with cash business and another by the appellant to the driver for carrying out the accounts business.  As a convenience they are offset and, in most cases, the amounts due from the driver appear to be a reduction in payments to him for accounts business rather than a payment by the driver but nonetheless they are separate items (I omit words).  This was not just a reduction in what the driver was paid for accounts business.  It was a reduced payment which he made for the privilege of working for the appellant and the benefits that brought in the form of access to cash business.”

22.	In other words, the Tribunal’s finding in that case was that the payment made by the driver, whether it was made as cash or as a deduction, was made for the benefit of access to the cash business which was the drivers’ business and for which the facilities provided by the company were indispensable.

23.	By contrast in the present case, the settle payment or deduction of £72 a week is not a payment or deduction for cash business.  Cash business attracted its own payment of £80 on which it is accepted that VAT is payable.  The £72 was a reduction in amount that the appellant would otherwise have paid its drivers for providing services to it.

24.	In the Camberwell case, the Tribunal dealt in paragraph 17 with two van drivers.  They said this:
“The schedule of payments due from the drivers shows that two drivers, 132 and 140, regularly paid £100 every week, implying they did no accounts work.  Mr Gregory explained that this was not the case.  They drove vans owned by the appellant rather than their own vehicles exclusively on account business as part of the courier service provided by the appellant.  The charge paid by the account customers for this service is higher than that paid for normal passenger business and the driver is also paid at a higher rate for the same journey.  The £100 deduction is a flat rate deduction not depending on the number of journeys.

Although there was no evidence on the point, we assume that there is no requirement to pay £100 if the driver does not work in a particular week.  We consider that this claim is quite different from the others.  The appellant could just as easily have reduced the rate of payment by £100.  The drivers are not benefitting from the ability to do cash business except for the possibility of doing so at weekends which the appellant allows them to do.  It seems most unlikely that the appellant’s set up of telephone bookings contributes at all to this.  Accordingly, insofar as the assessment relates to payments of £100 by these two drivers, while driving vans owned by the appellant, we allow the appeal.”

25.	Insofar as the Tribunal in the present case relied on the Camberwell decision and, in my judgment, they relied upon it heavily, they must, I think, have misunderstood the facts in Camberwell.  They cannot have concluded that the facts as regards those drivers who paid in order to secure the cash business were indistinguishable from the facts of the present case in which the settle payment was related, on their own findings, exclusively to contract business.  Insofar as the facts were on all fours with this case, it was the case of the two van drivers, whom the Tribunal in Camberwell dealt with in paragraph 17 of their decision, that borne the closest resemblance.

26.	In my judgment, the finding of a superficial resemblance between the facts of this case and the Camberwell case diverted the Tribunal from its proper task of analysing what the deduction of £72 was for in the present case.  In a case in which the driver carries out contract work only and is paid by the appellant for providing services to the appellant itself, a reduction in the amount of payment made by the appellant to its drivers cannot, in my judgment, be characterised as a separate supply without very cogent evidence.  If, for example, it represented hire of equipment which the driver would otherwise have to provide for himself, such as a car, that might constitute a separate supply, but the Tribunal made no such finding.

27.	Insofar as the deduction represented payment attributable to overheads incurred by the appellant in running its own business of providing taxi services to contracting customers, it is impossible to see what supply was being made by the appellant to the drivers.  In those circumstances, I will allow the appeal.

28.	The commissioners will pay the appellant’s cost of the appeal and the costs in the tribunal.