[2010] UKFTT 389 (TC)

TC00671
Appeal number: TC/2009/13195

Value Added Tax – Principal and Agent - Taxi Firm – Appellant made supplies of car hire services to account customers – whether supplies to cash customers were by the Appellant as principal with drivers as agents or whether supplies by drivers as principals – Appeal dismissed.

FIRST-TIER TRIBUNAL

TAX 

	ALBION TAXIS LIMITED	Appellant

	- and -

	THE COMMISSIONERS FOR HER MAJESTY’S
	REVENUE AND CUSTOMS	Respondents

TRIBUNAL JUDGE: W Ruthven Gemmell, WS 					 MEMBERS:		   Ian Condie, CA
   Scott A Rae, WS			

Sitting in public in Edinburgh on 23th June 2010

Mr Mark Burke of Abbey Tax Protection, for the Appellant

Mr Richard Mansell, instructed by the General Counsel and Solicitor to HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2010

DECISION

Introduction
1.	The Appellants (“Albion”) appealed against an assessment of Value Added Tax raised under Section 73 of the Value Added Tax Act 1994 (“VATA”) in the amount of £104,981 plus interest for the period 01 March 2006 to 31 October 2008.  The assessment was notified by HMRC (“the Commissioners”) on 30 March 2009 and following an internal review a letter was sent on 17 July 2009 upholding the assessment.
2.	Albion provides taxi services to account customers who pay Albion directly and are invoiced regularly (“account work”).  Taxi services are also provided as cash work which includes taxis picking up at taxi ranks and/or in the street and telephone bookings (“rank work”).  Albion contend that they act as a principal in respect of account work and as an agent in respect of cash work.  The Commissioners contend that Albion act as principal for account work and cash work.
3.	If Albion is acting as principal for both account and cash work then VAT is due on 100% of the income generated from all fares.
Legislation
VATA Section 47
Agents etc.
(1) Where — 
(a) goods are acquired from another member State by a person who is not a taxable person and a taxable person acts in relation to the acquisition, and then supplies the goods as agent for the person by whom they are so acquired; or (b) goods are imported from a place outside the member States by a taxable person who supplies them as agent for a person who is not a taxable person,[then, if the taxable person acts in relation to the supply in his own name, the goods shall] be treated for the purposes of this Act as acquired and supplied or, as the case may be, imported and supplied by the taxable person as principal. 
(2) For the purposes of subsection (1) above a person who is not resident in the United Kingdom and whose place or principal place of business is outside the United Kingdom may be treated as not being a taxable person if as a result he will not be required to be registered under this Act. 
[(2A) Where, in the case of any supply of goods to which subsection (1) above does not apply, goods are supplied through an agent who acts in his own name, the supply shall be treated both as a supply to the agent and as a supply by the agent.] 
(3) Where . . . services are supplied through an agent who acts in his own name the Commissioners may, if they think fit, treat the supply both as a supply to the agent and as a supply by the agent. 
VATA Section 73
Failure to make returns etc. 
(1) Where a person has failed to make any returns required under this Act (or under any provision repealed by this Act) or to keep any documents and afford the facilities necessary to verify such returns or where it appears to the Commissioners that such returns are incomplete or incorrect, they may assess the amount of VAT due from him to the best of their judgment and notify it to him. 
The Facts
4.	From the evidence before the Tribunal, the following facts were found –
5.	Albion carries on the business as a taxi company from Stirling Road, Fallin, Stirling, FK7 7JB.  It has been registered as a limited company for VAT with the number 829178396 since 01 December 2003.
6.	The Tribunal had before it the witness statements of the Commissioners’ officers, Carolyn Keir and Alison Beckest, who gave evidence and were examined and cross-examined.  Mr Pain, the managing director of Albion, also gave evidence and was examined and cross-examined.  All the witnesses who gave evidence were credible.
7.	The Tribunal also had before it a bundle of documents and, in addition, were supplied with a document provided by Albion headed up ‘Self Employment Drivers Agreement’ which had been shown to the Commissioners’ officer in September 2008 and which was differentiated from the agreement of the same name issued in November 2008 contained in the bundle.
8.	Ms Keir for the Commissioners visited Albion on 01 September 2008, 05 November 2008 and 12 December 2008 to conduct a VAT inspection of the business records and to obtain further information.  Ms Beckfest accompanied Ms Keir on her latter two visits.  Ms Keir is a VAT Assurance Officer of the Commissioners and Ms Beckest is a Senior Manager of the Commissioners.
9.	At the first visit on 01 September 2008, Ms Keir met Roberta Cameron the bookkeeper for Albion when the business set up, administration, accounting and other book keeping procedures were explained to her.  She was shown the control room by another member of staff who explained the taxi control system and cash handling procedures for drivers.  This visit was followed by a brief meeting with Mr Pain during which Ms Keir stated her belief that Albion were the principal for both account and cash work.
10.	Ms Keir admitted some difficulties in understanding how the accounting systems worked and, therefore, ascertaining the correct amount of VAT due.  All the cars were owned by Albion and all drivers filled in a log sheet showing the work they carried out each day which was handed in on a weekly basis.  These were reconciled with the records kept by Albion in respect of requests for account customer taxis and telephone bookings for cash work. These log sheets were retained for six months.
11.	Albion allocate work to drivers via the despatch management system known as “Autocab” which automatically differentiates between account hires and cash hires by showing “C” for cash work and “A” on account work on the driver’s data head which is the electronic device contained within the taxi cab.  Where there is a fixed price the drivers have the choice of sending back the minimum (Flag), Zero fare or the metered fare.  Cash hire is metered and would show on the driver’s fare screen as “C”.
12.	In relation to all cash hires, if these are on the meter, then Albion know this because the system will show that the meter is engaged.
13.	The drivers’ logs, the primary records, are reconciled with Albion’s data system and each driver is aware when he takes up a fare whether it is a cash fare or an account fare as the job is designated with either an ‘A’ or a ‘C’ code and this is then entered on the spreadsheet.
14.	In relation to some journeys, particularly those to an airport, there is a fixed fare which would normally be quoted by Albion to a customer who telephoned.  Mr Pain stated in evidence that these fares had been pre-arranged with the drivers and, accordingly, were generally acceptable to them.
15.	The details of transactions were noted on an Excel spreadsheet and account work and cash work were noted separately.  All account work was then invoiced by Albion to the customers directly a monthly basis.
16.	There were some differences between cash and account work on the spreadsheet mostly that one was in a different column to the other.
17.	Ms Keir ascertained that there were 30 self-employed drivers, five administration staff and six controllers and, in addition, there was a former driver, Tom, who was responsible for setting the shift and rota arrangements for the drivers. Evidence was given in relation to Tom, who was known as the manager, and who had been a former driver and sorted out shifts to ensure a 24 hour, seven day a week cover which Albion advertised. He was employed between December 2007/January 2008 and December 2008/January 2009.
18.	In simple terms, the amounts earned, whether by account or cash, were taken into account and from this was deducted the amount of any fuel costs and a controllers’ charge of £5 with the remainder of the proceeds  split 50:50 between Albion and the drivers.  The split might not involve any actual payment depending on the ratio of account cases to cash cases as in the case of account cases there would be no cash held by the driver.
19.	In relation to the payment arrangement, there were sometimes discounts allowed for late pick-ups.  VAT was accurately assessed and accounted for in relation to account work.
20.	Every driver was given the Self Employed Drivers’ Agreement which was not signed but which stated “by driving you are accepting these terms and conditions”.  The 18 September 2008 version stated as follows – “It is the intention of Albion Taxis to provide the best 24 hour, 7 day a week Taxi and Private Hire service in Stirling.  We provide the vehicles, marketing and call centre but rely on the drivers and controllers to operate the service together to the benefit and satisfaction of our customers and so that we all prosper.  The following guidance will help to achieve this.  By driving you are accepting these terms and conditions.  Changes may be made by agreement”.  The agreement is then split into five different sections – 
1. Rental
2. Shifts
3. Sheets
4. Vehicles
5. Operation

21.	Extracts from and provisions of these sections are as follows: -
“1a) All drivers are self employed and are responsible for their own Income Tax and National Insurance returns.
1b) Rental for vehicles equals half of the Driver’s total Shift takings less the total cost of the fuel used.
1c) Hires for Account Customers will be worked out according to the individual customer’s agreement.
1e) The Drivers will pay £5 per shift towards the costs of the Controllers.  20p per call if less than a four hour shift.
2a) The General Manager sorts out the driver’s shifts and cars.
2b) Shifts and starting times are agreed one week in advance.  These must be kept to at the risk of losing the car for that shift.
2c) There will be no shift finishes at the busiest times.  These are between 4pm and 6pm most days.
2d) There will be no distinction between Generals and Private Hire except when the ranks are busy in which case, the generals would be expected to work the rank and the privates, the phone work.  Tell the controllers when this could happen.  The Controller will decide depending on the forward bookings.
2g) Give at least one week’s written notice to take time off or to leave.
3a) Drivers sheets are the receipt for the money cashed in and are a legal requirement.
3c) Fill out the Drivers Log sheet fully including start and end mileage.
4f) Dress smartly in an Albion shirt, trousers and shoes.  Clip on ties are available.
5a) Log on at the start of each shift and log off at the end.
5b) Use the Data Head Controls and do not remove the laminated instructions from the cars.”
22.	Items that were stated in the agreement which, in Mr Pain’s view, were not adhered to were –
•	Staff and finishing times
•	Time off
•	Dress code
•	Sheets not completed in a satisfactory fashion
•	On occasion, simple repairs were met directly by the drivers 
•	There was no control over the use of mobile phones or smoking

23.	In relation to a breach of the conditions, Mr Pain said that any action depended on the severity of the breach and that, in a recent case, a driver had been driving erratically and smelt of alcoholic drink and so, accordingly, was not allowed to drive for Albion in the future.
24.	The Self Employed Drivers’ Agreement had now been withdrawn as “they were no longer enforceable and did not reflect what happened”.
25.	It was explained that Tom, the manager, was no longer employed by the Company and that the senior driver now arranges the shifts and rotas.  Mr Pain stated that although the drivers could refuse to carry out work he had to have sufficient drivers to enable him to have a 24 hour, seven day a week, taxi service and that in order to do so he relied on the drivers’ goodwill and willingness and his own contribution as a driver from time to time, where this was necessary.  Reasons for taxi drivers refusing to take a fare could include illness.
26.	Ms Keir, and her colleague, Ms Beckest, had concerns that Albion were acting as principals for both account and cash customers and it was agreed that this should be raised at their second visit.  Unfortunately, when this meeting was arranged Mr Pain was not available but as it was too late to reschedule the meeting, the visit went ahead anyway.  At this time, Ms Keir and Ms Beckest considered that the arrangements between the account and cash customers was sufficiently indistinct and, in addition, discovered that there were two employed drivers who predominantly dealt with the school contract work.  At the third meeting on 12 December 2008, Mr Pain was available with tax advisors at which Mr Pain explained how and why he had set up the taxi company.
27.	In relation to cash work by telephone, Mr Pain confirmed that these were no different to accounts work bookings.  What was different were cash fares for other rank work.
28.	Mr Pain claimed that in the event of an account customer failing to pay any fares then the loss would be absorbed by Albion and in relation to any cash work, such as a passenger running off without paying, the taxi driver would suffer the loss.
29.	In the event of non payment of a cash fare then the driver would be out of pocket and Albion would not receive the 50% share of the fare.  Taxis which are double shifted are normally garaged at Albion’s premises whereas those that are not are generally taken by drivers to their homes.
30.	The issue of who sets the fares was raised at the third meeting and Ms Keir’s recollection was that, what was outlined was merely the provisions and limits laid down by the Council.  Ms Keir did not recollect Mr Pain stating that all fares were set by the drivers but Mr Pain said that he had.
31.	On setting up the Company in December 2003, Mr Pain had made reference to the VAT guidance and was referred to Notice 700/25 “Taxis and Private Hire Cars” issued in May 2002 which states at paragraph 3.4, “Agent for both cash and account work”, “whether you are acting as an agent depends on the terms of any written or oral contract between you and the drivers and the actual working practices of your business……  Typically in acting as an agent for your drivers you will:
•	Relay bookings to the drivers (usually on a rota basis) on an agreed fee;
•	Possibly also provide them with other services such as the hire of cars or radios;
•	Collect fares on their behalf from account customers

If you act as an agent, the drivers are entitled to the full fares paid by the customers even though the charge for your agency services may be deducted from the account fares you collect from them”.
At paragraph 3.6 it states, “Agent for cash work and principal for account work”,  “you may depending on the terms of any written or oral contract between you and the drivers and the actual working practice of your business, be acting as an agent for the drivers for the cash work they perform…… and as a principal for the work done for account customers…..  However, if you are to account for VAT on this basis you must be able to satisfy us that: -
•	The arrangements are reflected in the terms agreed with your drivers and 
•	There is a genuine difference in the operation of the cash and account sides of your businesses

32.	Mr Pain explained that, in his view, the Self Employed Drivers’ Agreement was in effect a combination of a wish list of what Albion would like their drivers to do and a reflection of previous custom and practice.  Mr Pain emphasised that the relationship between the management of Albion and the drivers was, in essence, one of mutual benefit and co-operation.
33.	Mr Pain emphasised that drivers could refuse to take a fare if they wished and previously would arrange their working hours to suit themselves.  When Tom became the manager the rota system became much more entrenched and organised and at that time the Self Employed Drivers’ Agreement was drawn up, in particular to quantify the arrangement of the sharing of income and costs.  Mr Pain stated that full time drivers would generally work only for Albion but that the part time drivers would also work for other companies although this was disapproved of by Albion.  Similarly, although the Self Employed Drivers’ Agreement required compliance with a dress code, to wear uniforms with the Company logo and, in particular, the wish for drivers to wear the Company’s provided clothing, Mr Pain stated that this rarely happened in practice, if at all.
34.	Seven taxis were general taxis, five of whose taxi licenses were owned in partnership with others and in relation to the other two taxis, the drivers held the license.  In relation to the nine private hire cars, Albion was the license holder.  In relation to general taxis, they required to have a roof sign and a licensing authority plate and also exhibited Albion’s telephone number.  Private hire cars, had and required no roof sign and were not able to pick up fares at the rank or on the street  One driver had, at her own expense, purchased a credit card machine and, accordingly, took credit card payments for taxi journeys plus a small charge for the benefit of using this means of payment.
35.	In relation to advance payments, these would sometimes be paid up front, particularly in relation to taking passengers to airports on their departure on holiday and on their arrival at a later date.  This would often be paid directly to Albion and Mr Pain stated that these were held on trust for drivers and were not considered in the same way as an account fare.  Other than that, however, these fares were treated in the same way as account customers but in view of the company’s interpretation of the law, there was no charge for VAT.
36.	Advertising was carried out by Albion to generate more business which Mr Pain stated was mutually beneficial for both account and cash work.  In relation to wear and tear repairs, these were met by Albion but remedial repairs, where the damage had been caused by the driver and where insurance cover was not used, would normally be met by the driver or where there was a claim on insurance, the driver would pay the excess.
37.	All account work was prebooked either by phone or fax and occasionally online.  In addition, there was school contract work where the work was pre-tendered and, accordingly, the level of the fares has been pre-arranged.  In relation to account customers, there was monthly billing and Albion took the risk of non payment.
38.	In relation to cash work, this could be pre-booked and/or picked up at the taxi rank or in the street and/or by telephone booking.  It was stated by Mr Pain that the fare for this rank work was at the discretion of the driver.
39.	It was explained that the meter tariff was set down by the local Council and was a maximum.
40.	When a call is made to Albion it is put in the booking system and takes its place in a queue.  This is then despatched at the appropriate time, usually by radio, to a particular car.  This is usually the car which according to the GPS satellite system is closest to the place from where the fare is required to depart.  The driver deals with this by either pushing an ‘accept’ button or a ‘reject’ button and in the case of the latter, the matter is referred back to the controller who can then send it to another car.
41.	Meters are linked to the control centre so that it is known when they are turned on and off.  This system works as far as the radio coverage extends but would not work in event of a distance beyond that.
42.	Reference was then made to the Commissioners’ internal guidance note V1-37 Control Notes which supplements information contained in the VAT Leaflet 700/25 and to “Aide Memoire: To whom do the drivers supply their services” – referred to at V1-5.
43.	The extract from the V1-37 Control Note shown to the Tribunal contains guidance in relation to taxis and private hire car trade. It describes the organisation and lists the five main categories of the trade, explains the nature of taxable supplies and the details of the regulation of the trade.
44.	The Aide Memoire analyses 1) ownership of vehicles, 2) drivers’ access to vehicles, 3) costs and expenses, 4) payment by drivers to cab firm for support services, 5) the risk of bad debts, 6) advertising on cars, 7) control exercise by car firm, 8) record keeping and 9) prices for customers and analyses these with an indication as to the treatment as between principal and agent.
45.	In relation to three of these factors, ownership of vehicles, advertising on cars and record keeping, the Aide Memoire would suggest that the Albion supply is as a principal.  In relation to the remaining factors, the test was either inconclusive in terms of the guidance between principal and agent or contradictory.  Factor 7 - control exercise by the cab firm suggested that in the case of a principal supply, “drivers must accept all work offered to them by the cab firm” whereas under the agency arrangements “drivers may refuse work offered by the cab firm”.
46.	The guidance directs that the Commissioners’ officers should reach a decision on each factor and then weigh up all the decisions to find the majority view.
47.	The Commissioners’ officers were unclear as to whether the Self Employed Drivers’ Agreement was discussed at the meeting on 12 December 2008 and whether or not Mr Pain made specific references to the different arrangements which applied to account and rank work.
48.	Following the visits, the Commissioners’ officers were of the view that there was no difference between cash and account work and little difference between the treatment of the two employed drivers and the self employed drivers.
49.	Ms Keir stated her view in relation to telephone bookings for cash work that Albion had an obligation to find a driver in relation to such a fare to comply with their 24 hour, seven day a week, service standards, notwithstanding Albion’s statement that drivers had the right to refuse to carry out work.
50.	The Commissioners’ officers could not recall whether all the drivers were wearing uniform at their visits but it was thought that this was not the case although there was a recollection that one driver at least had been seen wearing a polo shirt with Albion’s logo.
51.	The Commissioners’ officers stated that they considered the Self Employed Drivers’ Agreement to be a valid agreement particularly in relation to the work and shift provisions and stated that they were not emphatically told that it was a wish list or anything other than an agreement binding on the drivers.
52.	The Commissioners wrote on 09 February 2009 stating they considered Albion was acting as principal for both cash and account work and that there were no significant similarities with the Gibbs Travel Case 2004 (where the Appellant proved there was a difference in the operation of the business between account and cash work).  The letter set out the Commissioners’ belief as to the consequences of Albion acting as principal and Albion acting as agents and in separate appendices set out the facts which suggested Albion Taxis was acting as principal and facts that suggest they were acting as agents.  Appendices set out the calculation of the amount of VAT that would be required to be paid where this differed between account and cash work and with the fuel allowance given.
53.	MacFarlane Gray, who were the Company’s accountants who were dealing with the matter, responded on 25 February.
54.	A card containing the name Albion Taxis and the telephone number as well as a website address was submitted and on the reverse the card was headed up “driver receipt” with a space for the driver’s name and the comment that “this is not a VAT receipt”.
Authorities
Customs and Excise Commissioners v Johnson - [1980] STC 624

Kieran Mullin Ltd v Customs and Excise Commissioners - [2003] STC 274

Hamiltax (VAT Decision 8948) 1992

Gibbs Travel (VAT Decision 18472) 2003

Gemini Cars (Egham) Limited (VAT Decision 20035) 2006

Starline and Wessex Taxis Ltd (VAT Decision 20294) 2007

Albion’s Submissions
55.	Albion accepted that they act as principal in respect of account work and VAT is accordingly brought to account correctly in this regard.
56.	The existence of two employed drivers who were therefore not self employed was acknowledged by Albion and the fact that they would require to make adjustments in respect of this for VAT.
57.	Albion say that cash work was provided by self employed drivers who are providing passenger transport services directly to the customers.
58.	In return for the service of putting work the way of drivers via their despatch system and for providing a service of administration management, Albion levy a weekly fee against drivers.  Albion say that this weekly agency fee represents the consideration for the supply of services to the drivers and they are not liable for VAT on fares received by the drivers in return for transport services provided by those drivers.  
59.	Albion say the Commissioners place too heavy reliance on the Self Employed Drivers’ Agreement which in reality is merely a statement of custom and practice, sometimes not observed, and is in many ways a wish list rather than a strictly enforceable legal agreement. Albion say that the Tribunal’s view should be formed by an emphasis on the working practices rather the rigid wording of the drivers’ agreement.  
60.	Albion say that they complied with the Commissioners’ guidance notice 700/25/02 and that the aide memoire V-5, following the judgement of Chairman Gort in the Gibbs Travel case, is only advisory, merely providing indicators and should not be wholly influential in determining the question of supply. Albion cite the case of Gemini Cars (Egham) to reinforce the point that although the aide memoire approach can be of assistance the result that it produces cannot be determinative of the matter.
61.	Albion contend that the key aspects of the Gibbs Travel case are sufficiently similar to their own for the same conclusion to be drawn, namely that they act as agents for cash work while acting in the capacity of principal for account work.
62.	Albion say that significantly the drivers have the right to and, indeed, do refuse cash fares but in practice, and although they have similar rights of refusal, they rarely turn down the opportunity to perform account work.
63.	Albion say that whereas they agree the prices for account work the driver is guided by Council set tariffs to determine the fares for cash work and that Albion has no control over or involvement with the customers over cash work.
64.	Consequently, Albion say that these factors point to there being a fundamental difference in operational practices and contractual arrangements with Albion having a pre-existing relationship with account customers as opposed to cash work derived from telephone enquiries, where Albion simply receives and passes on the request for a taxi from a customer to the drivers in return for which they charge their agency fees, or on the rank or on the street.
65.	Albion say the HMRC guidance is unclear and ambiguous and that they were not made aware by the Commissioners of their own internal guidance at V1-5 that would have enabled Albion to take full cognisance of the expectations of HMRC in this matter.
66.	Albion say, with reference to the Commissioners’ internal guidance note V1-37,  that unless there is a formal contract of employment, it is to be expected that few drivers could be shown to be working for a business in relation to cash work and they would be seen to be making their supplies direct to the customer.  Albion say that they have no control over shift patterns, since Tom left the Company, as this is carried out by the senior driver in conjunction with the drivers themselves.  Albion say advertising is controlled by them but that it is agreed with the drivers for mutual benefit and that Albion control the split of weekly takings as a means of establishing the level of fees due to Albion in respect of agency services.
67.	Albion contend in any event that the working practices in the agreement are in practice not followed by the drivers and, accordingly, little emphasis should be placed on the agreement.
68.	Albion claim that school runs are different from general account work and are not indicative of general account work. Albion, therefore, contend that there is a difference between cash and account work and this is confirmed by the Commissioners’ own notes of a visit where it was noted that daily log sheets distinguish between cash and account work.
69.	In essence, Albion say that the Respondents have placed too much emphasis on the wording of the drivers’ agreement and their use of the aide memoire system of determining who supplies what to whom and how.  Albion say insufficient attention has been paid to the reality of the day to day working practices which lead to the conclusion that the differences in contractual arrangements mean that Albion act as principal for account work only and agent for drivers in respect of cash work.
70.	Albion, accordingly, say the appeal should be allowed.
The Commissioner’s Submission
71.	The Commissioners say that Albion acts as principal for VAT purposes in respect of both account and cash work.
72.	The Commissioners say that if the business is set up as principal for one supply and agent for another then they would expect two distinct and separate supplies, even although money may change hands in one transaction.  The Commissioners found no evidence to support two distinct and separate supplies which allowed them to conclude there is a difference in the relationship between Albion Taxis Limited and the taxi drivers for account and cash work.  
73.	In particular, the Commissioners make reference to the Self Employed Drivers’ Agreement which amongst other things makes no mention of different arrangements for account and cash work.  The Commissioners say that one of the managers ensures that there is adequate cover throughout the 24 hour day by arranging the shifts; that at the start of each shift the driver completes a mileage log on his sheet and each driver gets a car full of fuel and is required to refuel the vehicle at the end of each shift.  To refuel the vehicle, the driver will use cash from takings.  The cost of refuelling is deducted from the takings and the remaining balance is split 50% to drivers and 50% to Albion.  Albion refer to their 50% as a vehicle rental charge; this charge fluctuates depending on the takings of that shift.  All information from the driver’s log sheet is input in to an excel spreadsheet for each driver for each day.  Account customers are billed directly by Albion.  The driver’s day consists of a mixture of cash and account work.  It is still all detailed on the sheet but he will be “cash short” from the account work done.  
74.	The Commissioners say there is no difference between Albion acting as principal for account work and agents for cash work.  In particular, they say all drivers work for Albion in the same way as an employee.  All cars are owned, licensed, taxed, insured and maintained by Albion and no car is allocated to a specific driver.  All cheque payments are made out to Albion.  Some cash work for self employed drivers is obtained through Albion.  If a customer asks for a receipt in a taxi they are supplied with an Albion business card with the receipt details stamped on the back on which there is no VAT number.  The Commissioners say all cars have Albion livery and in terms of the Drivers’ Agreement, drivers wear clothing with Albion logos.  Advertising is placed by Albion who pay for the cost of advertising whereas the drivers do not advertise their services.  Albion owns a website which advertises a 24 hour service, on line booking service and private and contract hire.  
75.	The Commissioners say the factors in support of Albion acting as agent are as follows –
•	the drivers apart from two are self employed;
•	the drivers suffer the bad debts, but the Commissioners qualify this by saying there is an opportunity cost of a cash fare not being paid whereby Albion do not receive the 50% they otherwise would have received if the fare had been paid
•	the drivers receive the full fare from cash customers and can pick up customers via taxi ranks over which Albion has no control.

76.	The Commissioners say that although drivers are able to refuse fares and, in particular, Albion has no control over their ability or otherwise to refuse cash fares from the rank or street, Albion provide a 24 hour, seven day a week service and will find a driver and that drivers rarely, if at all, turn down account work.  The Commissioners, therefore, say that Albion has a relationship with the customer for both account and telephone cash work and that there is no difference in the operation between these.
77.	The Commissioners say that there is contradiction between the alleged practice of drivers being free to carry out shifts at their discretion, and working for other companies, and the terms of the Self Employed Drivers’ Agreement whereby they must give written notice for time off or leave and have set hours.
78.	The Commissioners say that the level of control is considerably greater than Albion contend.
79.	The Commissioners say that, the involvement of Tom, who did not leave the company until December 2008/January 2009, in sorting out shifts rotas and cover supports the Self Employed Drivers’ Agreement and constitutes control; that there is no difference in the way the two employed taxi drivers are controlled compared with the other drivers as they both complete the same daily data log which was input in to the same spreadsheet and their fuel costs were deducted from daily takings prior to the inclusion on the spreadsheets.  The Commissioners state that drivers could drive for other companies and, it was admitted in evidence that some did so, but they are not supposed to.
80.	The Commissioners say that Albion constructed the business so that they exercised control over shift patterns, uniforms, logos, advertising, administration and the splitting of weekly takings.
81.	All drivers are subject to the Self Employed Drivers’ Agreement which clearly states how the Appellant wishes the Company to be run.  The agreement states that “by accepting driving you are accepting these terms and conditions” which in turn allow Albion to have control over how the business will run.
82.	Account and cash work are split 50:50 between the Appellant and the drivers and account work is reimbursed to the driver on a fixed fee basis.
83.	The Commissioners say that information supplied does not identify any difference in how the cash and account work are dealt with apart from a flag on the meter to show “A” for account and “C” for cash.  The risks associated with the business are borne mainly by the Appellant and this extends to cash fares where there is an opportunity loss or cost whereby the 50% share cannot be recovered.
84.	The Commissioners contend that the circumstances of Gibbs Travel are dissimilar to Albion and those in Hamiltax are similar.
85.	The Commissioners say that with reference to the Aide Memoire, there are more factors indicating a principal relationship than an agency relationship to substantiate a majority view that there is a principal relationship.
The Tribunal’s Findings
86.	Agency is the relationship which exists between two persons, one of whom expressly or impliedly consents that the other should represent him or act on his behalf, and the other of whom similarly consents to represent the former or so to act.. Whether or not an agency exists is a matter to be decided in accordance with the evidence.
87.	The Tribunal accept that the aide memoire approach can be of assistance but cannot be determinative of the matter.
88.	The Tribunal accept that in respect of account customers there is a pre-existing business relationship between the Appellant and those customers that does not exist in relation to cash customers.
89.	The Tribunal is satisfied that Albion considers itself to be bound to provide a taxi to its account customers who make a booking and that to all other customers it holds itself out as providing a 24 hour, seven day a week, taxi service.
90.	The Tribunal’s view is that the Self Employed Drivers’ Agreement is significant.  The Tribunal note that not only was the agreement issued and a copy given to the Commissioners in September 2008 but that this was amended and reissued to drivers in November 2008.  The Tribunal do not feel that is consistent with saying that the agreement is purely ‘a wish list and is in large part unenforceable’.   The Tribunal were mindful of the guidance set out in Starline and Wessex Taxis Ltd, at paragraph 22(5) following earlier Tribunal decisions:-  ‘where the persons who performed the acts constituting the supply were not employees, the starting point for determining the nature of their relationship with another person who might be treated as having made the supply is the contractual terms between them and that other person.’
91.	The Tribunal further consider that should it be in Albion’s interest to do so, it would seek to enforce the terms of the agreement in order to protect its own position.  An example of this was given in evidence of a driver dismissed for conduct because he smelt of alcoholic drink whilst driving.  As a consequence, the Tribunal agree with the Commissioners’ reliance on the terms of this agreement and believe its very existence mitigates against its enforceability or effect being discounted.
92.	The Tribunal consider that Albion’s claim to provide a 24 hour, seven day a week, taxi service means in practical terms they have to provide taxis in particular to account customers.  The contention, therefore, that drivers can always turn down a fare may be correct in theory but it is inconsistent for a business, which advertises a service of this sort, to be correct in practice.  In essence, the issue is, therefore, one of control and the Tribunal are of the view that the agreement is significant but must then look to the practical implementation to establish the relationship of either principal or agent in relation to cash account customers.  
93.	In evidence, Mr Pain was unable to differentiate the treatment between an account customer booking and a cash telephone booking and on the facts before the Tribunal there seemed little or no difference between them.  A significant point that was made by Albion was that in the circumstances of a telephone booking for a cash fare then the driver accepted the risk of loss but the Tribunal noted the Commissioners’ submission that this is not the case.  In the event of non payment of a cash fare to a driver then according to Mr Pain the fare is not taken into account with the consequence that Albion does not obtain its 50% share and, therefore, is subject to an opportunity cost.  Taking this to its logical conclusion, then if a driver had a run of unpaid fares, Albion would receive no income.
94.	In respect of the setting of fares for cash work, the Tribunal were of the view that Albion did have control as it was the company providing the taxi services.  Albion are advertising and displaying their telephone number and other advertising material on cars and could not carry out that business in the face of fares decided by drivers which were too high in purely economic in terms of running such a business.  The fact that the local authority will specify maximum fares does not detract from this essential economic necessity.  Conversely, if the drivers were to set the fares at too low a level then Albion’s 50% share would be lower and that might also mean an uneconomically unsustainable business.
95.	The Tribunal therefore find that in relation to cash fares there is an implicit, if not an express control, by Albion in relation to the fares set for cash work, notwithstanding that those fares would generally be at the metered rate set down within local authority guidelines.
96.	In relation to pre-determined fixed fares which would be quoted for telephone bookings to cash account customers (and to pre-paying cash account customers) by Albion, the fares were said not to be controlled by Albion but controlled by the drivers.  Again, in view of the requirement to run the enterprise on economic principles, the requirement to maintain a 24 hour, seven day a week service and the 50% share of the total shift takings, means that Albion has a direct interest and therefore control in the setting of the fare.
97.	The Agreement does not differentiate between account and cash work and fuel costs are deducted from all fares and Albion is responsible for insurance.
98.	The role of Tom, the manager, in setting the shift and rota arrangements and the statement of standard of cleanliness of vehicles and conduct all are persuasive of the practical implementation of control.
99.	The Tribunal take the view that the terms of the agreement, since it is there at all, is of significance, is enforceable and that whereas the drivers are said to set fares and be able to refuse work as they think fit, the practical reality is that Albion has an interest and implicit, if not explicit, control over the level of fares and the availability of drivers and explicit control over advertising, record keeping and most costs and expenses.
100.	Albion also exerted control to the extent that it maintained detailed records of each driver and had measures to monitor a driver taking fares which could be detected by a combination of the Autocab system, the GPS location system and the daily driver logs, enabling them to calculate individual drivers’ takings.  The Tribunal saw this as further evidence of a principal relationship rather than a supply of taxi services direct by the drivers to customers.
101.	The Appeal is therefore dismissed.
102.	This document contains full findings of fact and reasons for the decision.  Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009.  The application must be received by this Tribunal not later than 56 days after this decision is sent to that party.  The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice

W Ruthven Gemmell

TRIBUNAL JUDGE
RELEASE DATE:  19 August 2010.