20974

VAT – ASSESSMENT – Was the Appellant supplying taxi services to account customers as agent or principal? – Appellant had pre-existing business relationship with account customers and bore the risk of bad debts – Appellant acted as a principal – Appeal dismissed 

LONDON TRIBUNAL CENTRE

	BATH TAXIS (UK) LIMITED   	Appellant

	- and -

	HER MAJESTY’S REVENUE and CUSTOMS	Respondents

			Tribunal: MICHAEL TILDESLEY OBE	 (Chairman)
				      RICHARD CORKE FCA            (Member)	  

Sitting in public in Bristol on 17 February 2009

David Memery, VAT Consultant for the Appellant

Sarabjit Singh counsel instructed by the Solicitor’s office of HM Revenue & Customs, for the Respondents

© CROWN COPYRIGHT 2009

DECISION
The Appeal
1.	The Appellant was appealing against an assessment for unpaid VAT dated 17 April 2007 in the sum of £46,448 plus interest for periods 07/06, 10/06 and 01/07.
The Dispute
2.	The Appellant provided taxi services from its premises in Bath. The services were carried out by owner drivers (46 owners at the time of the assessment). There were two categories of customers: cash and account. The cash customer used the Appellant’s taxi services on an ad-hoc basis, and paid the driver a metered fare at the end of each journey. The driver retained the whole of the fare but paid the Appellant a weekly £92 circuit fee for the services provided by the Appellant. The Respondents agreed that the Appellant acted as agent for the drivers in respect of supplies to cash customers, and liable only to account for VAT on the £92 circuit fee.
3.	The account customer, on the other hand, did not pay the driver but was invoiced by the Appellant on a monthly basis for the taxi services. The Appellant paid the driver 90 per cent of the fare and retained the remaining 10 per cent for the administrative services associated with account customers. The Appellant considered that it was acting as agent for account customers and accounted for VAT on the 10 per cent administration fee. In contrast the Respondents contended that the Appellant was the principal for the account customers and liable to account for VAT on the whole fare.  
4.	The dispute was: “Who made the supply of taxi services to the account customers”? There was no dispute about the quantum of the assessment or whether it was made to best judgment.
The Evidence
5.	We heard evidence from David Julian Scaramanga, the director for the Appellant and Leah Marcus Jones, the assessing officer for the Respondents. A bundle of documents was presented in evidence.
The Evidence
6.	On 1 May 2006 Mr Scaramanga acquired the taxi business from Bath Taxis Limited as a going concern. Mr Scaramanga paid a lump sum plus a monthly charge for seven years for the business. The monthly charge was eventually bought out by Mr Scaramanga. There was apparently no written documentation evidencing the purchase which was negotiated between Mr Scaramanga and Mr Rundle, the director of Bath Taxis Limited. The purchase price was for the goodwill and the telephone number of the business. Mr Scaramanga set up a new company vehicle for the business which was known as Bath Taxis (UK) Limited. Mr Scaramanga had no connection with Bath Taxis Limited. On 30 June 2007 the Appellant discontinued the business of a taxi service and commenced trading as vehicle leasing company, the vehicles being used as taxi cabs.
7.	The drivers were self employed owning the taxis.  The previous owners, Bath Taxis Limited, had issued the owner drivers with a Principal Statement of Terms and Conditions in which the driver owners agreed to rent a radio which gave them access to the private radio network operated by Bath Taxis Limited. The drivers also undertook to keep their vehicles insured, taxed with a current MOT and kept in a clean and tidy condition. The terms and conditions required the drivers to observe a Customer Care of Conduct and a Dress Code. Finally the Statement referred to a fare tariff.  Mr Scaramanga accepted that the Appellant did not retract the Principal Statement when it took over the business. However, he considered the Principal Statement of Terms and Conditions to be unenforceable because it had not been specifically agreed between the Appellant and the drivers. He pointed out that the drivers were self employed and that there was a limit to the control that the Appellant could exercise over them. According to Mr Scaramanga the drivers were informed by word of mouth about the Appellant taking over the business.
8.	The Appellant inherited a block of account customers from Bath Taxis Limited, which had negotiated terms of engagement with those customers. In some cases the terms were reduced to formal written agreements, which all appeared to have expired at the time of the acquisition of the business by the Appellant except for an agreement with Bath and North East Somerset Transportation and Highways  (BANES) entered into  for a period of 12 months from 1 May 2006 to 31 March 2007. In a letter dated 15 March 2007 Mr Scramanga considered the agreement still valid. The BANES agreement required the Appellant to provide a vehicle for specific journeys at an agreed fare.
9.	Bath Taxis Limited had a website which set out its services including offering clients an account facility which provided customers with a priority professional courteous service and if the journeys were regular a fixed rate pricing structure. The website was still in operation on 8 March 2007. The website had not been changed to reflect the change of ownership to the Appellant. Mr Scaramanga, however, accepted that the Appellant continued to trade under the names of Bath Taxis and Bath Cars.
10.	The Appellant advised the account customers that it had taken over the business in a letter enclosed with the first batch of invoices. The Appellant entered into no new agreements with account customers during the period of the assessment.  Mr Scaramanga, however, accepted in evidence that the Appellant adhered to the existing terms and conditions previously agreed by Bath Taxis Limited with the account customers. Further Mr Scaramanga stated to Mrs Marcus-Jones that it was the Appellant not the drivers which decided whether some-one could have an account.
11.	According to Mr Scaramanga, the account customers phoned the Appellant for a taxi. The details of the customer’s request was fed into a computer which  then allocated the fare to a driver in the vicinity of the pick up of the customer. The driver had a choice whether to accept the fare of an account customer. If he declined the Appellant would try to find another driver for the customer. Mr Scaramanga insisted that the Appellant could not guarantee a taxi for an account customer, which was supported by a fax from Bath Spa University dated 24 July 2008 in the bundle  stating that
“Whilst the majority of our taxi bookings were placed with Bath Taxis we did also use other taxi companies. On occasions it proved fruitful to have an account with an alternative company as Bath Taxis would occasionally advise us that they could not meet our requests”.
12.	Mr Scaramanga stated that the account customer would pay the metered fare for the journey. The driver, however, did not take the fare from the account customer but instead input the details of the fare into a data head located in his cab which  transmitted  the data to the Appellant for the purpose of drawing up an invoice at the end of each month. Mr Scaramanga’s evidence was contradictory on this point because he accepted that with some account customers they would pay an agreed rate for a journey which had been pre-booked and regular in nature. The example given was the Langridge & Northend Area Fare Scheme agreed with BANES.
13.	The Appellant invoiced in its own name the account customers at the end of each month. The customers either settled their account by BACS to the Appellant’s bank or by cheque addressed to the Appellant. Mr Scaramanga asserted that account customers received no preferential treatment over cash customers other than the extension of credit.
14.	The Appellant paid 90 per cent of the value of the account customers’ fares to the drivers who made the journey by the 29th of the month following the month in which the fare was carried. The Appellant retained 10 per cent of the fares to cover the costs of the extra administration involved. Mr Scaramanga initially told the Tribunal and Mrs Marcus-Jones during her investigation that the account customers always settled their accounts on time, which meant that the question of who carried the risk of defaulting account customers never arose. Mr Scaramanga retracted his evidence when presented with copies of the Appellant’s ledgers which showed that some of the account customers did not settle their account by the due date. Mr Scaramange accepted that it was the Appellant which carried the risk of bad debts by account customers. 
15.	Cash customers contacted the Appellant usually by telephone for a taxi. The customer would be allocated to a driver who collected the fare. The driver carried the financial risk if a cash customer did not pay. The Appellant’s weekly circuit fee of £92 was not dependent upon the value of the drivers’ takings from cash customers.
Reasons
16.	The Appellant’s case rested on the proposition that there should be a clear contractual difference between cash and account work in order to make a ruling that it was a principal in respect of account work but acting as agent for cash work. The Appellant’s proposition was derived from the Respondents’ internal guidance headed V1-5 Taxable Person and decided Tribunal cases. In this case the Appellant’s representative asserted that there was no clear contractual differences between the two types of work and that the Appellant should be treated as agent of the taxi drivers in all respects. The validity of the representative’s proposition depended upon Mr Scaramanga’s evidence coming up to proof about no substantial difference between account and cash work and that the Appellant had abandoned the arrangements previously made by Bath Taxis Limited. We were not impressed with Mr Scaramanga’s evidence which was found wanting in key areas. On several occasions during his testimony he was obliged to correct his previous statements, in particular fixed charges for account customers, and liability for bad debts.
17.	The Respondents acknowledged that their internal guidance indicated that there would rarely be any genuine differences between cash and account work, and that most taxi firms would either act as agent or as principal. However, if there were genuine differences between the two types of work, then it may be the case that the taxi firm was acting as agent in respect of one type of business and as principal in respect of the other. Further Respondents’ counsel recognised the similarities between the facts of the Appellant’s case and two Tribunal cases, Triumph and Albany Car Service (LON/80/115) and Carless [1993] STC 632, which decided that the taxi firm in question acted as agent for its cash and account customers alike.  
18.	The Respondents, however, contended that the facts of this Appeal demonstrated that there were real differences between the cash side of the Appellant’s business and the account side. Moreover, the weight of Tribunal authority favoured their argument that the Appellant acted as principal in respect of its account customers.  For example in Ahktar Hussain t/a Crossleys Private Hire Cars (MAN/99/20) the Tribunal decided that the taxi firm acted as principal for its account customers. The Tribunal in that case relied on its findings that in respect of account work the taxi firm bore the risk of bad debts, fixed the rate for fares, and kept detailed records of the work carried out. 
19.	We find the following facts:
(1)	The Appellant took on the taxi business of Bath Taxis Limited as a going concern. 
(2)	The Appellant assumed the trading names of Bath Taxis and Bath Cabs which had been used by Bath Taxis Limited.
(3)	The Appellant continued with the previous arrangements agreed by Bath Taxis Limited with the account customers and with the owner drivers. The previous arrangements included providing account customers with a priority professional courteous service and if the journeys were regular a fixed rate pricing structure
(4)	The Appellant held a pre-existing business relationship with account customers which did not exist in relation to cash customers.
(5)	The Appellant was responsible for collecting the whole fare from the account customers, whereas with cash customers it was the drivers’ responsibility. The Appellant invoiced the account customers in its own name and kept records of account customers.
(6)	The Appellant bore the financial risk of bad debts for account customers, whilst the drivers carried this risk for cash customers.
20.	Hutchinson J in Carless v Customs and Excise Commissioners [1993] STC 632 at 638 endorsed the Commissioners’ argument that
“in a field where there are a number of decisions of Tribunals some of which have fallen on one side of the line and some on the other, it was open to the tribunal in the present case to conclude that the taxpayer was not acting as a principal”.
21.	We consider that Hutchinson J was cautioning Tribunals against conducting an elaborate analysis of previous Tribunal decisions when the decision to be made was essentially one of fact. The issue in this Appeal was straightforward: who made the supply of taxi services to account customers? In our findings we rejected Mr Scaramanga’s assertion that the sole distinguishing feature between account and cash customers was the provision of credit to account customers. We found that the Appellant had continued with the arrangements previously agreed with account customers by Bath Taxis Limited, which included offering account customers a priority service and a fixed rate pricing structure. Further the Appellant had a pre-existing business relationship with account customers from whom the Appellant collected the fares, and bore the risk of bad debts. We are satisfied on the facts found that the Appellant acted as a principal in its relationship with account customers.
Decision
22.	We decide for the reasons given above that the Appellant acted as a principal in its relationship with account customers. We, therefore, dismiss the Appeal and uphold the assessment in the sum of £46,448 plus interest for periods 07/06, 10/06 and 01/07. We make no order for costs.

                                

                                 MICHAEL TILDESLEY OBE
CHAIRMAN
RELEASE DATE: 13 March 2009

LON/2007/1767