Adding Spice to VAT Land and Property

The recent tribunal decision in the case Dazmonda Limited trading as Sugar and Spice makes interesting and sometimes inadvertently amusing reading. The business is an adult entertainment bar that sought to argue that commission paid to it by private dances was exempt from VAT. This was on the basis that the commission related to a supply of land by Sugar and Spice to the dancers. 

 

The business had a dance floor, seating and a  bar and six private booths where the dancers could give private performances for patrons. The business did not employ the dancers instead they relied on tips and payments from patrons for private performances and paid a house fee and commission to the business. The business had already agreed that the house fee was subject to VAT but sought to argue that the commission are exempt on the basis that the dancer was paying to hire the booth and that the commission income therefore related to a supply of land, whereas HMRC had ruled that the commission income was subject to VAT.

 

The tribunal agreed with HMRC that the club was making a single composite supply to the dancers of the use of the booth, advertising services, music and in common with others the use of the upper floor and its facilities . This took the supply outside of being a simple supply of land and instead made it subject to VAT. The case highlights the fact that it is easy for businesses to misunderstand the nature of their supplies for VAT purposes  and it is always worth checking carefully to ensure that if a client treats part of their income as free from VAT for whatever reason , that they are correct to do so.

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