Sugar & Spice, based in Norwich, lost its appeal in the First-Tier Tax Tribunal concerning the application of VAT to the supplies it provided to its dancers.
The dancers were not paid by the club but made payments to use its facilities for exotic dances. They also earned income directly from patrons for dancing on the dance floor or for private performances from within booths.
Sugar & Spice said the booths it provided for dancers should be treated as a supply of land and should therefore be exempt from VAT.
But HM Revenue & Customs said the services provided to the dancers, such as advertising, music, lighting, heating, cleaning, management and security, should be standard rated.
The dancers’ payment to the club for the use of the booth created a bone of contention over whether the supply of the booth should be considered separately or wholly for VAT purposes.
The tribunal chairman ultimately ruled that the provision of the booth was not ‘economically divisible’ from the other elements of the supply, because the dancers were dependant on using the main part of the club to attract customers for private dances.
In its final decision documentation, the First-tier Tribunal Tax Chamber sad: “The club was not passive in its provision […] It added value to the simple provision of land.
“That was to our minds a supply properly characterised as the provision of services rather than the passive supply of land.
“As a result that composite supply did not fall to be treated as a supply of land and is standard rated.”
Baker Tilly VAT partner Jim Burberry said: “This is the latest decision in a series of cases relating to the VAT and tax affairs of businesses in this sector.
“This case should help provide some clarity on the application of VAT to the services provided by other firms operating similar business models.”
