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Supplies of Land v Supplies of Services - Tax Tribunal Draws the Distinction

The difference between a supply of services and facilities and a supply relating to an interest in land is important because only the latter is exempt from VAT. A tax tribunal ruling, however, showed that distinguishing one from the other is often a highly fact-sensitive exercise and no easy matter.

The case concerned a hair salon which licensed a beautician to occupy a back room in its premises. HM Revenue and Customs raised an £18,649 VAT demand against the salon on the basis that the arrangement amounted to a standard-rated supply of services and facilities.

Ruling on the salon's challenge to that outcome, the First-tier Tribunal (FTT) noted that the beautician had a right to exclude others from the room, where she carried out such intimate tasks as personal waxing. She occupied a defined area, accessed by a separate staircase, and paid rent on a rolling month-to-month basis. The FTT found that the salon's arrangement with her was not immediately precluded from being a supply related to an interest in land.

The salon provided the beautician with certain services: amongst other things, they shared a receptionist and use of a toilet and staff room. The salon advertised the beautician's services on its website and by putting a poster in its window. On the other hand, there was very little crossover between their clients and the beautician provided all her own equipment. She was free to decorate the room, which was provided to her unfurnished, however she wished.

In upholding the salon's appeal, the FTT found that the services provided by the salon were ancillary to the supply of the room and not a predominant part of the supply. The beautician was not required to use those services and their provision was clearly not essential to her business. The arrangement was properly characterised as a VAT-exempt, relatively passive, supply of land.

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