Parker Car Services v Revenue & Customs [2010] UKFTT 227 (TC)

FTT-Tax
Parker Car Services v Revenue & Customs
[2010] UKFTT 227 (TC) · 2010-05-19
[1]This is an appeal against an assessment dated 24 February 2009 in the sum of £177,031 plus £20,212.01 interest, a total of £197,243.01 for the periods from 1 January 2006 to 31 July 2008. The assessed sum was reduced on 9 June 2009 to £163,984.00 a difference of £33,259.01 from the original assessment. The assessment is for VAT allegedly due in respect of supplies made by Parker Car Services (“PCS”) to its account drivers in the course of the operation of its taxi business.[2]The core issue raised in this appeal is whether a sum described at the material time by PCS as “Account Work Commission” and subsequently as an “Account Work Discount,” which was charged by PCS to account taxi drivers constituted consideration for a supply of services by PCS within the meaning of Section 5(2)(b) VATA 1994. The Respondents say that it does and that accordingly PCS needs to account for output tax on such amounts. Chronology[3]The chronology leading to the assessment is as follows(1) On 13 June 2008 an officer of the Commissioners, David Neal, visited the Appellant’s premises and examined their books and records. As a result of that visit and correspondence following, HMRC formed the view that the company provided certain services to its employed, and self employed drivers who undertake work for PCS’ account customers, and that those services were for a consideration.(2) On 28 October 2008 there was a visit by an Audit Services Officer, Ms Susan Coltart.(3) Following correspondence with PCS’ representatives, Messrs Bright Grahame Murray, chartered accountants, on 4 February 2009, the Commissioners wrote to PCS stating that, in their view, the amount referred to in Driver Statements as Account Work Discount was : “…….. charges raised for the supply of Parker Cars Services’ infrastructure services to these businesses, in the same way as they are for cash work, and thus are subject to the same liability for value added tax purposes.”(4) On 24 February 2009, the Commissioners issued an assessment which was for 7/47 of all accounts shown in CORDIC (a software programme) as “Account Work Commission,” including those amounts for employed drivers where the percentage was shown as 100%.(5) On 2 March 2009, PCS served a Notice of Appeal against the Assessment. Their grounds of appeal were “The assessments for the periods 1/11/05 to 31/1/06 is excessive and wrong in law and invalid because it is out of time. The assessment for the period 1/2/06 to 31/7/08 are excessive and wrong in law”(6) After further correspondence between the parties, on 14 May 2009 a Local Compliance Appeals Review Officer, Mrs Tina Saunders, wrote to Messrs Bright Grahame Murray upholding the assessment, as follows: “The Commissioners have ruled that the Account Work Commission, now referred to as the Account Work Discount, is standard rated and not zero rated as your clients have been treating it”.(7) On 9 June 2009, the Commissioners issued a Notice of Assessment in the sum of £163,984 , a reduction from the original assessment. Background[4]PCS is a partnership which operates a taxi business from premises at Unit 3, Victory Business Centre, Fleming Way, Worton Road, Isleworth TW7 6DB. The partners in that business are Joe Polley and Andrea Polley.[5]PCS uses both employed and self employed drivers; the vast majority (300) are self employed.[6]The company has approximately 40 staff members who run the administrative side of the business, which has a turnover of between £5-6 million per annum. It is a successful business which has been built up from the start and which continues to grow and expand.[7]PCS has a number of customers which include a local authority, an NHS Primary Care Trust and one of Her Majesty’s Prisons and other businesses. These are account customers.[8]The business believes in properly training its administrative staff to provide a good service. Staff are trained in conducting various tasks including telephone bookings, communication and running the control room, which provides administration for the business.[9]The partnership undertakes cash work and account work. Cash work refers to work in which passengers pay cash to the driver at the end of the journey. Account work refers to work where passengers (booking an account with PCS) pay for their journey on receipt of an invoice from PCS, at a later date after the journey has been completed.[10]PCS moved into new premises in 2008. The premises house the main administrative centre for the business. The premises are laid out in open plan to accommodate different activities, including a customer call centre, within which a number of employed staff conduct the bookings for the taxi service business. PCS accepts passengers both on a cash basis and account basis. Where a prospective passenger calls PCS to book a taxi, the person dealing with the call will ask the passenger for their details, including pick up point and destination. Once these details have been taken, the passenger is provided with a price for the journey and at that stage asked whether they wish to pay cash for the fare or put the fare on an account. The passenger can either pay cash at the end of the journey or pay PCS by credit card at the time of booking. Passengers settle account fares on presentation of an invoice by PCS.[11]Some important aspects of the business are explained below. CORDIC[12]PCS accesses all bookings through a computerised system called “CORDIC”. It is a software system which provides booking and despatch solutions to taxi and courier businesses. It is an integrated system which not only records bookings, calculates fares and deals with accounts but also provides a global programme satellite (GPS) route management and account package. Once all relevant data including pick up address and destination has been input, into the CORDIC system by the call handler and it has been established whether or not the booking is a cash or account booking, the booking is transmitted over the PCS CORDIC network to the drivers, who are linked to the CORDIC system through a computer laptop instrument called an XDA, which is kept in the driver’s car. Drivers can accept a booking and access the details of that booking from within their own car using this XDA facility. CORDIC also calculates the amount owed to individual drivers in the driver statement. Driver Statements[13]At the end of each week, the CORDIC system operated by PCS produces weekly drivers’ settlement sum statements for each individual driver. The statement which the tribunal had sight of had the following information – a listing of fares recorded as provided by each driver at end of the week, an indication of whether the fares were for cash or account work, an amount recording items identified as ”Cash Work Commission” and “Account Work Commission”, additional charges made in respect of account customers, a rental charge for the XDA receiver installed in the driver’s car and a schedule identifying other miscellaneous charges.[14]The statement also shows a total amount collected by the driver from passengers during the week (cash work), the total amount due from the driver to PCS (Cash Work Commission/Account Work Commission), XDA rental fee and any other fees, the amount payable to the driver by PCS (i.e. total of any fees paid for account work and other charges). The total sum due from each driver to PCS is then netted off against the total sum due from PCS to the driver to provide an overall “settlement statement”.[15]PCS uses Microsoft Access Database and Microsoft Excel to produce summaries of the data from CORDIC and this data can then be entered into accounting software to provide full accounts. VAT returns are produced using data from CORDIC, after it has been reconciled in Microsoft Excel.[16]The CORDIC system therefore provides several important services to PCS when running their taxi business and in dealing with between 7000-8000 jobs per week. It was introduced into the business as a dispatch system in 2003 and, after having investigated different systems. It was adapted to suit the needs of PCS. Drivers[17]Drivers undertake both cash and account work. All drivers pay £12 plus VAT per week for their XDA in car facility.[18]Where a driver undertakes a cash booking, the driver pays a fixed fee which is a commission fixed at either 20% or 26% of the fare paid by the passenger. The exact percentage paid depends on the driver, quality of the car and agreement with PCS. The amount which is paid is called the “Cash Work Commissions”. The driver therefore receives either 74% to 80% of the total fare paid by the cash customer. Some drivers for cash work pay a “Circuit Fee” of up to £120 to PCS rather than the Cash Work Commission. PCS accounts for VAT on the Circuit Fee.[19]The drivers undertaking account work, with whom we are concerned in this appeal, are paid for their services at a rate which has been agreed between PCS and the individual driver. PCS determines the cost of sale, which is called the Account Cost Tariff and pays the driver a percentage of this sum. The percentage is either 74% or 80%. The Account Cost Tariff is a notional sum determined by PCS after considering certain market and price data. The Tariff is not the fee charged to the account customer by PCS. The drivers know the prices in the Account Cost Tariff but they do not know the prices charged to the account customers.[20]PCS collects money due from account passengers. PCS pays the drivers directly in relation to work undertaken for PCS and this payment is usually made before the invoices are paid by the account customers, which means that PCS bears the risk of any bad debt on the invoices. If an account customer defaults on a payment, PCS does not seek to recover any of the fare from the driver. The amount retained by PCS (20% or 26% of the Account Cost Tariff), is usually referred to as the Account Work Commission (later changed to Account Work Discount.) The name change was made in 2009 after a visit by HMRC.[21]The drivers are also paid out of pocket expenses, for example, for parking charges. The driver’s statement provides information about cash and account work. As explained earlier, sums due to and from the driver, are netted off to come to a total settlement amount.[22]There are some entries on the driver statements which we need to understand. These are:(1) “Account Credit” – this is the notional amount on which PCS calculates the amount to be paid to the driver. It is not the amount charged by PCS to the account customer.(2) “Account Expenditure” – this is the amount payable by PCS to the driver for expenses incurred in undertaking their journeys, for example, parking fees.(3) “Account Work Commission” (now “Account Work Discount”) – this applies the appropriate agreed percentage, 20% or 26%, to arrive at the account drivers agreed remuneration of either 74% or80%.[23]“The Account Cost Tariff” is a notional sum used to calculate account drivers’ payments. The relevant legislation[24]Section 1 of the Value Added Tax Act 1994 (“VATA”) provides (so far as is relevant); z“(1) Value added tax shall be charged in accordance with the provisions of this Act – (a) on the supply of goods or services in the United Kingdom (including anything treated as such a supply) …. and references in this Act to VAT are references to value added tax”. Section 4 of the VATA provides:
“(1) VAT shall be charged on any supply of goods or services made in the United Kingdom, where it is a taxable supply made by a taxable person in the course of any business carried on by him. (2) A taxable supply is a supply of goods or services made in the United Kingdom other than an exempt supply.”
Section 5 of VATA provides (so far as is relevant):
“(1) Schedule 4 shall apply for determining what is, or is to be treated as, a supply of goods or a supply of services. (2) Subject to any provision made by that Schedule, and to any Treasury orders under subsections (3) to (6) below (a) …. supply in this Act includes all forms of supply, but not anything done otherwise than for a consideration; (b) anything which is not a supply of goods but is done for a consideration, (including, if so done, the granting, assignment or surrender of any right) is a supply of services.”
The Authorities[25]The relevant authorities are: Gemini Cars (Egham) Limited v Commissioners of Customs & Excise (2006) VTD 20035; Argyle Park Taxis Limited v Commissioners of Customs & Excise (2007) VTD 20277; Camberwell Cars Limited v Commissioners of Customs & Excise (2001) VTD 17376; A2B Radio Cars v Commissioners of Customs & Excise (1997) VTD 15145; RJ and CA Blanks v Commissioners of Customs & Excise (1996) VTD 14099 Kieran Mullin Ltd v Commissioners of Customs & Excise [2003] STC 274 Appellant’s arguments[26]The Appellant’s main arguments can be summarised as follows(1) The combined effect of sections 1, 4 and 5(2)(b) VATA is that VAT is only chargeable on the supply of services where there is something done for a consideration. PCS say that apart from supplying the use of the XDA equipment to self employed drivers, PCS does not do anything for its drivers when they are providing their services to PCS for PCS’ account work. Further, apart from paying PCS for the XDA equipment, the drivers do not provide any consideration to PCS in respect of account work. In other words, PCS say they make no supply of administration services to self employed drivers who provide their services to PCS.(2) The second point the Appellants make is that the drivers do not provide any consideration for a supply to PCS (apart from the payment for the XDA facility). The amount called the Account Work Discount, is only “a mechanism for ensuring that the CORDIC system showed the correct amount due from PCS to drivers for Account Work”. It is not payment or consideration for the supply of services by PCS to the drivers.(3) PCS rely on the tribunal decision in Gemini Cars (Egham) Limited. (2006) VTD20035 . They quote the following from that case …. “In our judgment ….. the agreement between the Appellant and the drivers, properly construed, was not that the drivers would pay a fee of 15% of their account-customer earnings to the Appellant in consideration of the services provided to them by the Appellant in that regard, but rather that the Appellant would pay to a driver 85% of any fee agreed between the Appellant and one of its account customers (provided that the fee was, in fact, paid) in consideration of the drivers fulfilling the Appellant’s obligation to provide taxi services to that particular customer, i.e. at the 85% of the driver’s remuneration for acting as agent of the Appellant in relation to the Appellant’s supply of taxi services to its (that is, the Appellant’s) customers”. 24.(4) PCS say that on a proper examination of the authorities, there is no support for the proposition that a deduction from the payment made to a sub contractor for his services is consideration for any general “administrative services”. 24.(5) PCS agrees that it provides administrative services as agent for drivers who undertake cash work. However when undertaking account work, PCS acts as a principal and the drivers supply their services to PCS and not to the customer.(6) In these circumstances, the drivers have no need for administrative services apart from the XDA, for which PCS makes a separate charge.(7) The Appellant does not accept the Respondents’ assertion that PCS is making the same supplies to drivers in respect of account work as in respect of cash work.(8) PCS say that there is only one supply in respect of account customers and that is the supply of taxi services to its customers by PCS. The administrative services form part of the overheads of PCS and are taken into account in determining the price for the supply of taxi services. There is no second supply of administrative services to drivers undertaking Account Work on which VAT is chargeable, as the Respondents submit. The Respondents’ submission[27]The following is a summary of the Respondents’ arguments:(1) Their core submission is that the sum described by PCS as Account Work Commission/Discount which is charged by PCS to taxi drivers constitutes consideration for a supply of the service or services provided to them by PCS within the meaning of section 5(2)(b) VATA 1994. Accordingly, the Respondents say that PCS must account for output tax on such amounts.(2) The Respondents say that the administrative services which are provided to drivers in respect of cash bookings are similar to the supplies to drivers in respect of account bookings and PCS cannot be correct in their assertion that the only service which PCS provides to its drivers who undertake account work is the provision of the XDA equipment. The XDA on its own has no value without access to “PCS control centre and taxi despatch system”. These services include, access to passengers, means of communicating, pick up and delivery of passengers, the ability to collect money, advertising and general administration.(3) The important relationship, according to the Respondents, is between the driver and PCS and the relationship with the customer, is not the relevant relationship which should be addressed in looking at the VAT treatment of the supply. The Respondents say that in order for the driver to have access to fares, he needs a number of administration services from PCS.(4) The services received by drivers from PCS are the same whether the driver is an account or cash driver.(5) The relevant documentation, the Driver Statements and the Drivers Terms and Conditions are not reliable documents in establishing whether a supply was made. The relevant documentation is that which existed when the settlement was made and the terms of the Driver Statements were refined (from Account Work Commissions to Account Work Discount) only after HMRC started making enquiries. The Respondents say that the Account Work Commission is the appropriate wording and best represents the nature of the payment.(6) The second document, the Drivers Terms and Conditions, was different at the time of the assessment and an original document has never been produced for the period. The document presented to the tribunal was not a document which was used at the time of the assessment. For this reason no reliance can be placed on that document. The contract between the drivers and PCS was oral and not written.(7) The Respondents say that in substance the arrangements between PCS and the drivers in respect of account bookings does not differ from that between PCS and drivers in respect of cash bookings and the Account Work Commissions represents consideration for the administrative services being provided by PCS to the drivers. The economic relationship between the drivers and PCS, whether cash or account, is the same. The net sum received by drivers is the same percentage.(8) The Respondents draw on the case law to show that there is a supply from PCS to the driver ( R J and C A Blanks, A2B Radio Cars and Camberwell Cars ) and is a taxable supply in ( Argyle Park Taxis ). Witnesses and Evidence[28]Evidence was presented in two ring binders, one of authorities and one of a joint bundle of documents including the witness statements of Andrew Murray-Playfair and Joe Polley for the Appellant and David Neal, HMRC, for the Respondents. The Tribunal also had written submissions from Counsel. The matter was partially heard between 3 and 4 March and resumed on the 19 April.[29]The Respondents provided both typed and hand written notes of the hearing called “HMRC Notes of Hearing” comprising 90 pages when typed.[30]Let us start by looking at the evidence. The tribunal heard evidence of Mr Andrew Murray-Playfair, the Finance Manager of PCS who read his Witness Statement (18 pages, dated 21 September 2009) which included various exhibits including the Driver Terms and Conditions, local authority contracts for taxi services, Her Majesty’s Prisons contract, application form for an Account Customer, Terms and Conditions and different Driver Statements showing balance payable, receivable balance and other information. He gave oral evidence as well as providing his Witness Statement. The second witness for the Appellant was Joe Polley, who is the senior partner of PCS. His witness statement was brief. He provided a significant amount of oral evidence to the tribunal. The witness for the Respondents was David Neal, whose Witness Statement was approximately seven pages long and who also provided oral evidence. All Witness Statements included exhibits.[31]The oral and written evidence of Mr Andrew Murray-Playfair revealed the following points:(1) His role covered all financial aspects of the business including budgeting, forecasting and preparing the accounts. It includes analysis of accounts, accounting systems and the taxi dispatch system called CORDIC. He assumed his role in 2005.(2) CORDIC is a generic taxi management system and enabled PCS to communicate with each driver through the XDA which is rented and VAT paid on the rental.(3) PCS accepts account and cash work. He said that when a customer calls the Appellant to book a taxi, the person dealing with the call will, after essential details such as name, pick up point and destination, ask whether the customer will be paying cash or whether the journey will be charged to an account. For cash work, the driver is paid directly or via a credit card at the time of booking. The driver also collects an administration fee (30p) for PCS. For Account Work, the driver does not collect any payment. Rather, PCS invoices the customer and collects the payment.(4) There are different types of drivers. There are circuit fee drivers who are self employed and pay a weekly circuit fee of up to £120 to PCS rather than paying a Cash Work Commission. They retain all cash collected from customers. For account work, PCS pays the driver for his services. VAT is accounted for in the circuit fee. There are self employed drivers who undertake cash work. The driver collects the cash price and booking fee from the customer for the journey. The drivers undertaking this type of work pay a Cash Work Commission which is an agreed percentage of the total collected by the driver to PCS. For this type of work the driver is treated as the principal and the Appellant acts as a drivers’ agent. There are standard drivers who do account work. For this type of work the driver does not collect any payment. Instead the Appellant invoices the customer and receives payment from the customer. The driver is paid for his services by the Appellant. There are also employed drivers who drive specialist vehicles such as a van or mini bus who are remunerated by salary alone.(5) The tariff for cash work and account work operates as follows. As explained, as far as cash work is concerned, each driver pays PCS a commission fixed at either 20% or 26% of the fare paid by the passenger which is called Cash Work Commission. The driver therefore receives either 74% or 80% of the total fare paid. For account work, the notional value called the Account Cost Tariff (which is all related to the amount charged to the customer) is used to calculate the amount which is paid to drivers for account work. The Account Cost Tariff is “influenced by market forces between the Appellant and the drivers, for example; driver recruitment, fuel prices and insurance costs”. The driver receives approximately either 74% or 80% of the notional figure.(6) For cash work a booking fee of 30p is charged to the customer and paid by the driver to PCS.(7) Each driver receives a periodic statement from PCS which records the work which has been undertaken in a given period. This is called a Driver Statement. Each statement is generated by the CORDIC system and provides a breakdown between the amount of cash work and account work undertaken during the period in question.(8) Mr Murray-Playfair pointed out that the manner of calculating the amount paid for cash work and for account work differed and a driver was paid a different amount for the journey depending on whether the work was cash or account. He explained that although “same percentages are used for Cash Work Commission and Account Work Discount, this does not result in the driver being paid the same amount because the percentages are applied to different amounts. For Cash Work, the percentage is applied to the fare paid less the booking fee. For account work, the percentages are applied to the notional value given by the Account Credit”. (Para 58, Witness Statement.)(9) The witness made the point in oral evidence that PCS charges £12 per week for the XDA facility, however BT and Vodaphone charge £18 per month for the equipment together with data calls and GPRS.(10) In oral evidence Mr Murray-Playfair gave an example of the current fare between Bloomsbury to Heathrow to explain the difference between cash and the account fares paid to drivers. He explained: The fare for a cash customer is £50.40 including a 30p booking fee. The driver would pay PCS the booking fee of 30p and would also pay PCS Cash Work Commission of 13.03p, which is 26% of the fare of £50.10. The driver would therefore keep £37.07. The Account Cost Tariff for the same journey is £47.40. PCS would therefore pay the driver £35.08 which is 74% of the £47.40. This was used to explain that the fares were not identical but the percentages used in calculating what is due to PCS and to the driver were identical for cash and account work. The net sum received by the driver is different in each case. The Evidence of Joe Polley[32]Mr Polley was present during the evidence given by Mr Andrew Murray-Playfair. Mr Polley’s Witness Statement stated that he had read the Witness Statement of Mr Andrew Murray-Playfair. He confirmed his agreement to the fact and matters which were set out in that document. The points made below relating to his evidence arise mainly from the examination of the witness. He made the following points:(1) The pricing structure for account journeys is different to the pricing structure for cash journeys.(2) He confirmed that it takes between 8 and 10 hours to train a member of staff to undertake the telephone bookings and administrative duties.(3) He agreed that the PCS administration was like an “air traffic control” system. He said that the XDA is of no use unless data is imported into it. The driver needs the “control room” input for the XDA to have use to the drivers.(4) He confirmed that PCS has undertaken a marketing initiative in advertising through direct marketing, newspapers, directories and interviews of customers. He confirmed that the drivers benefited from this marketing.(5) He confirmed that PCS administers jobs through a computerised software system, CORDIC, which also enables PCS to communicate with drivers via the XDA.(6) The XDA allows drivers to have the address of the passenger for collection and for delivery and the link with PCS allows this to take place accurately.(7) He explained that the amount paid to a driver for account work is agreed with the driver when the driver is first recruited and is paid at the rate of 74% or 80% of the Account Cost Tariff. He agreed with the evidence of Mr Andrew Murray-Playfair that in the development of the CORDIC system the same percentages (20% or 26%) were used as the basis for calculating both the amounts payable by drivers to PCS for cash and the amount payable by PCS to the drivers for account work. He explained that PCS became only the second customer for CORDIC after he saw it demonstrated at a trade show. It had been developed for circuit fee business and had no facility to calculate driver percentages. Initially he was told that it could not be adapted to incorporate percentages but a solution was found by which the system was able to deal with one percentage calculation per driver statement. This meant that where the percentage, say 26%, was applied to cash business undertaken by a driver to arrive at the payment due to PCS, the only way to calculate the amount due against the Account Cost Tariff for account business, was to reverse the calculation. The outcome of that is what we have seen ie a calculation that appears as a deduction of 26% from the Account Cost Tariff rather than what PCS is seeking to achieve ie a calculation of 74% of the Account Cost Tariff payable to the driver.(8) He confirmed that the word “commissions” had caused problems with HMRC and was changed to “discount”.(9) He confirmed that the contract of the drivers was oral and that the agreement was “dynamic” in that it could change over time. The drivers were able to negotiate higher rates because of the quality of their vehicle.(10) He confirmed that the XDA was an important piece of equipment to both account and cash work drivers. The statement of David Neal[33]Mr Neal is a Higher Officer, HMRC, who visited PCS on 13 June 2008. He provided a Witness Statement as well as oral evidence at the Tribunal. The main points of his evidence are as follows: (1) He explained the bookings made with PCS by customers during his visit. He stated as follows:
“During the course of my visit I spent sometime listening to call handlers speaking to customers. I observed that each of the telephone conversations followed a similar pattern. The call handler would introduce himself or herself as Parker Cars and request details of the prospective fare including the customer’s name, contact details, the date and time of the pick up, a pick up address, the destination address, the type of vehicle required, the number of passengers and various further relevant details, such as parking, waiting or luggage. After the details had been provided, the customer was provided with a price for the job, and at that stage asked whether they wished to pay cash for the fare or to put the fare on an account. ….. I formed the impression that call handlers followed a clearly regimented and routine procedure.” (Para 6, Witness Statement) (2) He described the CORDIC system as “an intelligent integrated system which not only records bookings, calculates fares, and deals with accounts, but also provides GPS satellite route management and accounts package. As all relevant data (pick up address and destination etc) has been input into the CORDIC system by the call handler, and it has been established whether or not a booking is cash or account booking, the booking is transmitted over the Parker Cars Service CORDIC network to the drivers, who are linked to the CORDIC system via their in-car XDA. Drivers can then “accept the booking and accept the details from within their own car”. (3) Mr Neal reviewed the drivers’ settlement statements (and provided a copy to the Tribunal). (He also provided a series of exhibits dealing mainly with correspondence between 17 July 2008 and 24 March 2009 between HMRC and the Appellant or their representatives. He also provided a copy of the Drivers Terms and Conditions presented to him which was unsigned and undated.) (4) He said that in his view PCS provided services to its drivers which were a taxable supply of services and there appeared to be no difference of any significance for VAT purposes between cash work and account work. (5) It was his view that PCS were “supplying the same administrative and infrastructure services to its drivers in relation to account work as it supplied to its drivers in relation to cash work”
. Findings of facts[34]The tribunal finds the following facts:(1) PCS has an arrangement for self employed drivers to provide their services to passengers on both a cash basis and an account basis.(2) PCS administers its bookings through a system known as CORDIC, a taxi dispatch system which enables PCS to communicate with its drivers via an in car installation known as an XDA, for which the driver pays a fixed fee of £12 per week plus VAT.(3) Drivers receive a periodic statement from PCS recording the work that has been undertaken during a given period. This is called a Driver Statement. The Driver Statement is generated by the CORDIC system and provides a settlement amount either owing to or from the driver.(4) PCS takes a fixed percentage of either 20% and 26% of the fare paid by passengers for cash business. For account work, PCS takes roughly the same percentage but of a notional figure called the Account Cost Tariff which is less than the fare paid by the passenger.(5) PCS pays account drivers a fixed agreed amount which is often paid before the passenger or account holder has paid the invoiced amount.(6) PCS provides a range of administrative services to drivers in respect of cash bookings. This includes advertising and marketing, maintaining premises, manning telephones and keeping drivers abreast of the booking.(7) A passenger can pay either cash for a journey or can pay PCS by credit card at the time of booking. Passengers settle account fares on presentation of an invoice by PCS.(8) The contract between PCS and its drivers is oral. The tribunal does not accept the contemporaneous document the Drivers Terms and Conditions. There was no copy of this document which was dated or contained the names of the parties who had agreed the terms and conditions.(9) PCS amended the terms of the Drivers Statement and began referring to Account Work Commission as Account Work Discount after HMRC had made enquiries.(10) The tribunal accepts that the drivers conducting account work did so as sub contractors for PCS. The tribunal has accepted that PCS acted as agents when drivers were undertaking cash work.(11) The XDA is a computer system which is portable and is installed in the driver’s car which enables the driver to communicate with PCS’ control centre.(12) The Account Cost Tariff is a notional rate set by PCS which forms the basis on which PCS calculates how much it will pay its self employed drivers for journeys for PCS’ account customers. PCS charges customers a Personal Account Tariff or a Standard Account Tariff based on distance and variables such as the time of the day and the type of vehicle. The Personal Account Tariff is a tariff negotiated by PCS with individual customers which maybe higher or lower than the Standard Account Tariff.(13) Drivers undertaking account work are paid expenses (which includes parking fees) which are reimbursed by PCS.(14) Employed drivers receive a salary from PCS and are not paid for each account journey.(15) None of these self employed drivers undertaking account work are registered for VAT.(16) PCS accounts for VAT on the commission (20% or 26%) it charges to drivers for cash work.(17) The cash customer pays PCS a booking fee of 30p which is collected by the drivers on behalf of PCS. PCS accounts for VAT on that booking fee. The authorities[35]The Tribunal will now consider how other tribunals decided cases of a similar nature. It must be emphasised at the start that each case has been decided on its own facts and circumstances.[36]The Commissioners case rests to a large extent on the case of Argyle Car Taxis Limited v The Commissioners of Customs and Excise (2007) VTD 20277. In this case, the taxi company employed staff who worked out of a central office which allocated work to drivers through a telephone booking system and provided a two way radio to drivers. There was no requirement for the drivers to return their radio when they were on holiday or not working. The drivers provided their own car, fuel and paid the taxi company for the use of the radio, staff and other administrative overheads. The sum paid was referred to as “Settle Income” of £80 for cash work and £72 for contract work. For cash work, the taxi company would advise the drivers over the radio of any customer who telephoned for a taxi service. The customer would pay the driver who in turn paid the taxi company £80 each week out of his fares. For account work the driver was paid a rate agreed with the taxi company beforehand. In undertaking an account transaction, the driver took a ticket from the customer identifying the price of the journey, which was paid then paid to the taxi company who calculated the amount due to the driver and pays them within two days of receiving the ticket. They paid a weekly sum of £72 (the Settle Income.) The Respondents say that Settle Income is consideration for a supply of administrative services and the Account Work Commission is indistinguishable from the Settle Income, which was held to be consideration for a taxable supply by the company to its drivers of radio and administrative services.[37]The tribunal believes that the Argyle Park Taxi case can be distinguished from the facts of the present case. In the Argyle Park Taxi case, there was no charge for a radio to the drivers. The radio in our case is a navigation and communication system which provides the basic services for the account driver to perform their contracted work for PCS. The provision of the radio was considered part of the supply which was being made in return for the payment of the Settle Income. In our case, PCS accepts that such a supply is taxable and has charged and accounted for VAT on the supply of the XDA radio. Secondly, in the Argyle Park Taxi case the driver was paid the full fare paid by the account customer less an amount deducted as the Settle Income. PCS does not pay to its drivers the full fare which PCS charges its customers. The driver’s remuneration for account work is based on an agreed percentage of the Account Cost Tariff, which is a different sum from the amount charged by PCS to its account. Thirdly, the decision in Argyle Park Taxis relied on the earlier decision in Camberwell Cars Limited v Commissioners of Customs and Excise (2001) VTD 17376 (“Camberwell Cars”) as authority for the proposition that the Settle Income payment was “consideration for a supply of support services, such as advertising, operating a telephone booking system and providing two way radios to the drivers”. (Paragraph 17, Argyle Park Taxis). It is not our view that this was the basis of the decision in Camberwell Cars.[38]Let us look closely at the Camberwell Cars decision to see what was decided. In that case drivers received a payment in respect of work performed for account customers which was paid on an agreed scale of charges and under the terms of their engagement. The driver participated in a “bonus scheme” which started with a payment of £100 by the driver to Camberwell Cars if they performed no account journeys in a week. This was reduced according to the number of account journeys undertaken until, if the driver undertook 50 or more journeys, he received an extra payment. The tribunal recognised that the “driver benefits from the Appellant’s telephone booking and radio contact and is willing to pay for this access to cash business.” (Paragraph 15, Camberwell Cars) The tribunal said “that it seems to us that there are two separate payments: one by the driver to the Appellant for the benefit of being provided with cash business, and another by the Appellant to the driver for carrying out the accounts business. As a convenience they are offset and in most cases the amounts due from the driver appear to be a reduction in the payment to him for accounts business, rather than a payment by the driver, but nevertheless they are separate items” (Paragraph 15, Camberwell Cars) The tribunal recognised that the bonus scheme payments were partly for “telephone bookings and radio contact” and partly for “being provided with “cash business”. It was not for support administrative services, this seems a much wider concept and includes, for example, advertising for and the obtaining of customers. The decision is specific, it describes the Settle Income payment as a payment for telephone and radio services and not for administrative services generally.[39]There is another distinction to be made between Camberwell Cars and our case. In Camberwell Cars, the company did not make any charges in respect of cash work although it was accepted that they were providing an agency service to the drivers they did not make a separate charge for the radio. If the driver did not work, he had to hand back the radio or pay the bonus scheme charges (£100). In our case, the Account Work Commission is not a payment by the drivers to PCS for being provided with cash work. Rather PCS charges a Cash Work Commission of 20% or 26% of the fare paid by cash customers as an agency fee for cash work. The Account Commission charged by PCS is akin to payments referred to in paragraph 17 of the decision in Camberwell Cars, in which the tribunal held that a flat rate fee paid by some drivers who did only account work was not consideration for any supply of services provided by Camberwell Cars.[40]It is important to establish the exact supplies, if any, which are being provided to the account drivers. It cannot be assumed that because there is a reduction in the amount paid to a driver doing account work that there is consideration for a supply of administrative support services. Mr Rivett in his submissions said that the services provided to drivers for cash and account work were exactly the same and this included access to PCS’ passengers, the benefit of PCS’ extensive marketing, banking services and services of PCS’ control room providing the name and address of passengers, destination and fares (including the fixing of fares) and other information. The tribunal does not believe that this is correct.[41]Let us look at how and when these supplies, if any, are provided. Once the drivers have been paid a fee for account work, generally before the customer is invoiced, they drop out of the picture. The services described in the Respondents’ submissions would generally be needed by PCS in managing and developing an efficient and organised business. The administrative services involved in marketing, collection and delivery of passengers and the control centre services (booking, communication and GPS) are services which relate to both PCS’ account and cash businesses. They are integral to the core business of PCS and are services required by a taxi service company. The driver has no need for administrative services generally, they receive their remuneration for driving cars. They do not need PCS to find them customers. The driver needs only to have the XDA installed in their car to receive passenger related information. It is correct that PCS provides a control centre facility which in turn provides content into the XDA to assist the driver in determining the fare, destination and keeping records. The need to be informed of the job details is something which any sub-contractor would require. The control room function allows PCS to provide a proper service to its customers. Customers would expect the company to have provided the driver with all details of that job. The rental fee for the XDA paid by drivers includes providing information content for its operation.[42]The services of advertising for customers and marketing of taxi services are not services which would typically be undertaken by taxi drivers working for a taxi company. Their work is drive to cars. The CORDIC facility, which provides accounting information and details of the driver’s earnings, is an information technology system which is important for the running of the PCS business. It is a system for checking, storing and processing information relating to that business. PCS must organise its business to provide drivers, collect payments, invoice customers, pay drivers, fix fares, organise a proper booking system with experienced staff and agree terms and conditions with drivers. These are all services which PCS require for their business and PCS have organised their affairs to have these in house. These are not being provided to the drivers though they do benefit from these facilities being in place.[43]Let us look at the second case on which the Respondents rely. That case is R J & C A Blanks v Commissioners of Customs and Excise (1996) VTD 14099 which is referred to in the Camberwell Cars case some years later. In this case a partnership operates a mini cab business with drivers providing their own vehicles. The partnership provides the drivers with a two way radio and an introduction to customers. The drivers were paid agreed rates for carrying out account work (0.05p per mile for the first 100 miles and not less than 0.65p per mile thereafter). Drivers who failed to complete 100 miles each week of account work were required to pay a £70 penalty for the use of the radio. The drivers were allowed to retain the fares from cash customers. HMRC issued an assessment on the ground that the partnership was making taxable supplies of services to drivers which should be valued at £70 per week. The tribunal upheld the assessment and dismissed the partnership appeal saying that there was a “direct link” between the services which the partnership supplied to the drivers and the driver’s obligation to provide driving services to the partnership or to pay for the use of radios. The tribunal decided that the obligation to drive for 5p per mile for the first 100 miles or pay 70p a mile if less than 100 miles was consideration not consisting wholly in money and the value of the consideration was a promise to pay a maximum of £70. Therefore tax was due on £70. The tribunal stated:
“It seems to us to be an inescapable inference that this is why the drivers contract with the Blanks . They want access to the customers; and the Blanks want owner drivers to service their commitments to their account customers. For those reasons we think that the Blanks make supplies to the drivers: ”
[44]This case can be distinguished from our case. The Blanks did not charge drivers any commission for providing access to customers for cash work on their own account and secondly, there was no separate charge for use of the two way radio.[45]The Tribunal in Camberwell Cars also referred to the earlier case of A2B Radio Cars v Commissioners of Customs and Excise (1997) VTD 15145. In this case the partnership operated a mini cab business for self employed drivers and had account customers. The drivers received 90% of the amount paid by the account customers less a deduction called a “contract levy”. There was also a charge made on drivers for the hire of radios. HMRC issued an assessment on the basis that the contract levy represented consideration paid by the drivers for supply of services by the partnership. The partnership argued that the contract levy was simply an amount taken into account in determining the amount payable to drivers for services which they provided. The tribunal accepted this position and allowed the appeal. The tribunal accepted that the partnership received consideration but this was for the hire of radios. The contract levy was not treated as additional consideration. The contract levy itself was a reduction on a sliding scale basis which increased with the total value of the contract work undertaken.[46]It was recognised in this case that a separate charge was made for the radios rented to drivers. That charge was viewed as a charge for “all services provided by the firm to the driver i.e. the provision of the radio and the service of informing drivers either over the radio or otherwise of jobs that need doing, whether such jobs are case work or contract work”. (Para 10 of the decision.) There was, as we have in our case, a deduction from the fare (in this case 10%). This deduction and the radio rental charge were referred to as “contract charges” which were used to calculate the amount payable to drivers”. The Commissioners accepted that a 10% deduction was not consideration for any supply of services by A2B to drivers undertaking account work but they argued that the contract levy was consideration for administrative services provided to the driver. The tribunal held (at para 17): “The contract levy adjustment to the 90% otherwise payable for contract work cannot be a consideration because the firm is receiving consideration in full for all the services it provides to the drivers. My decision is that the contract levy is exactly what it purports to be, an attempt at creating fairness between drivers who may do more or less contract work and that its true nature is an adjustment to the deduction from the 90% paid to drivers for client work”.[47]The tribunal decided that neither the 10% deduction from the fare paid nor the contract levy adjustment was consideration for a supply of services to A2B. This is in spite of the sums being called “contract charges”.[48]The Appellant also relies on the case of Gemini Cars (Egham) Limited, explained earlier, where the drivers undertaking account work paid a fixed fee, which was deducted from the price for the job agreed with the customer. The tribunal decided that the company was acting as principal in respect of account work and the payment of 85% of the fee paid to the driver was “in consideration of the driver’s fulfilling the Appellant’s obligation to provide taxi services ….”. The Respondents say that the Appellant’s reliance on this case is misguided since the issue in that case concerned the identity of the maker of supplies of taxi services to account customers which is not in dispute in our case.[49]What emerges from the case law is that each case has to be decided on its own facts and circumstances. Taxi firms undertake two types of work, cash work where the driver is paid and in turn pays a commission payment to the taxi company, and account work, normally with companies or public bodies who are invoiced by the taxi company. The driver is paid for providing the taxi. As a general rule, the taxi company operates as an agent for the driver undertaking cash work and as the principal for those drivers undertaking account work. Both aspects of the business are usually run from the same firm and there is no division within the firm of the two parts of the business. The drivers typically receive less for account work than cash work. The drivers tend to be self employed who own their own vehicles and typically are not registered for VAT.[50]The cases do not seem to define any clear general principle and the facts can be distinguished. In Camberwell Cars and A2B Radio Cars the tribunal decided respectively that a payment made by drivers for access to cash business and a deduction from the fare paid as a contract levy, were not consideration for a supply of services. This can be contrasted with the decisions in Argyle Park Taxis and Blanks, where firms running similar businesses were held to be making taxable supplies to drivers and VAT should be accounted for on those services. In our case, it is not disputed that PCS makes taxable supplies to customers in respect of each account booking but the issue is whether in respect of each account booking it also makes a supply of administration services to each driver for which the Account Work Commission is consideration. There is no evidence that any additional consideration is being paid for administrative services other than the payment for the XDA, which provides navigational and communication facilities to drivers. The tribunal finds that the payment for XDA is proportionate to the services received. There is no other consideration for any other supplies being made. Further, a deduction from a payment made to drivers cannot, on its own, conclusively establish that it is consideration for being provided with administration services. VATA 1994 - Supply and consideration[51]What are the Section 5, VATA 1994 requirements? It lays down two conditions. First, there must be something done, secondly, there must something done for a consideration. In other words, does PCS make a supply to the driver undertaking account work and what is the consideration for that supply? The Respondents say that PCS are providing administration services to drivers and the drivers pay for these services. In their view the driver is getting much more than the XDA palm top. The driver needs access to passengers and the means of communicating with those passengers and a facility for collecting money. The driver’s main concern is to obtain access to fares but needs different services from PCS in order to earn the fares. The Respondents say that if one looks at the relationship between PCS and the driver, it is evident that the driver receives a similar proportion of the fare for both cash and account work. It is therefore implausible that one is charged to VAT and the other is not. Discount or commission; the fee is paid by the driver for the services provided by PCS which allows the driver to earn the fare.[52]First, one must address the evidence of Mr Polley. He accepted that services received by the drivers were the same whether account or cash. He acknowledged that the XDA did not do much on its own without “back up from the office”. While the tribunal accepts the statements of Mr Polley, it must be understood in context. It is correct to say that the drivers are provided with information from the control centre of PCS and a system for guiding the taxi drivers to collection and destination points. This is necessary in order to provide an efficient service to customers and for the smooth and efficient operation of the business. These services are priced within the fare charged to the customer. It is required that PCS provide certain information to the drivers but only in so far as those are required for the efficient running of their taxi service. The drivers do not need any administrative services provided by PCS when undertaking account work. All they need is to drive the customers to their destination and receive the remuneration from PCS. . They do not require PCS to find customers because their services are being provided to PCS not to their own customers. The only facility they require is the XDA to receive information regarding the fare.[53]The evidence provided by Mr Andrew Murray-Playfair and Mr Polley is that a driver is a sub contractor of PCS who supplies services to PCS in a similar way to the services provided to PCS by other taxi firms such as Addison Lee. The commission payment by drivers to PCS which is shown on the Driver Statement as “Account Work Commission” is used in the CORDIC system to calculate the amount payable by PCS to drivers for account work. Its terminology is unfortunate but this is not determinative of its purpose. The adaption of the CORDIC system from a taxi dispatch system to a quasi accounting system used to calculate and keep track of payments to drivers may be responsible for it being called and treated in the accounts as a commission.[54]The tribunal was presented with evidence from Mr Andrew Murray-Playfair and Mr Polley that CORDIC is not a book keeping system but provides data which can then be used to provide accounts. It would be more accurate to describe the facilities offered by CORDIC to PCS and drivers as no more than a reconciliation system or payroll entry for the purpose of arriving at the amount payable to the taxi drivers. It would be easy to lump together a series of services called administrative services and then to say that these are all provided to drivers by PCS. However, in looking at the individual services, several of these are not administrative services being provided to drivers but rather services that PCS requires for running its own business. It is important that PCS communicate with drivers the telephone details of the job as well as provide information on the payments so that at all times the customer gets what it has paid for. The provision of information by PCS to drivers is a necessary consequence of acting as a contractor and conduit between the taxi driver and the customer. It would be normal for a contractor to have in place a system for allocating jobs to drivers, location and time of pick up, details of each job allocated and summaries of each drivers work and pay. These are essential preliminaries in a relationship with a sub contractor and in having an organised business. They are not, however, administrative services provided to the driver.[55]Let us look at the consideration, if any, which is provided by the drivers. The Commissioners have taken the view that the Account Work Commission (later Account Work Discount) is consideration for a supply of services. Mr Polley gave evidence that this sum was first called the “sub contractor payments”. When the accounting system was adapted by Mr Murray-Playfair the name was changed. The commission is used as a mechanism for ensuring that CORDIC showed the correct amount due from PCS to both employed and self employed drivers. The Commissioners have accepted that although one hundred per cent account work commission for employed drivers is included in the assessment, PCS is making no supply of services to its employed drivers. The tribunal can see no difference in the way the commission is used as a mechanism for calculating payments for self employed account drivers and employed account drivers. Further, the Respondents submit that the “arrangements between PCS and drivers in respect of account booking do not differ from those between PCS and drivers in respect of cash bookings” and so both payments to PCS should be viewed similarly, ie as a payment for a supply. The reality is that the payments and margins are different. They also say that the rental fee for the XDA is “minimal” to take account of other payments made by drivers but the evidence (BT and Vodaphone rental fee) does not bear this out. The tribunal is not convinced by the Respondents argument that the cash and account bookings are “identical in overall economic terms”. The tribunal finds that there are differences in the payments and relationship between PCS and drivers for cash and account work and consequently it cannot be concluded that the same services are provided to the drivers in both cases. The tribunal feels that the payment for XDAs is proportionate to the services received and there is no further consideration paid by drivers. Conclusion[56]The tribunal does not believe that the account work commission (or discount) is consideration for a supply made by PCS to its drivers. There are a number of factors which lead the tribunal to this conclusion. There is a basic difference between account bookings and cash bookings. Cash bookings are done on behalf of the driver, whereas account bookings are done by PCS for their customers. It is correct to say that in both cases the XDA is rented from PCS. This is a standard piece of equipment required by all drivers in order to have communicated to them details of the booking and for which they are charged a weekly fee plus VAT. The tribunal believes that this is the only service which PCS provides to the drivers. The tribunal does not believe that this charge is minimal or that its cost is linked to other payments or services. It is all the driver needs to undertake account work and payment is proportionate to the services received. The case law provides support for the view that a flat rate deduction is not consideration for a supply of services as decided in A2B Radio Cars and in the Camberwell Cars decision. The cases of Blanks and Argyle Park Taxis can be distinguished from our case on the ground that there was no separate charge for radio services and no payment for cash work (Blanks) and the company paid the driver the full fare paid by the customer (Argyle). The particular way in which payments are structured can result in different tax treatments.[57]The tribunal feels that the commission is a mechanism for ensuring that CORDIC records the amount payable by PCS to drivers. The historical adaption of CORDIC supports this finding.[58]What emerges from this tripartite relationship is that PCS runs a business of providing taxi services to account customers. As part of that service it monitors telephone calls, arranges transport and provides back up services. It negotiates with the account customers terms of payment, invoicing and collection of money. The company pays its drivers a fixed rate and undertakes the risk associated with the collecting money from the account customers. They exercise a certain level of discretion over the amount which is paid by account customers and can provide discounts.[59]The conceptual framework for administration is built around the customer and is a service led business which has back up facilities for ensuring that all parties in the relationship perform their part of the bargain. It is important to take a broad overview of the tripartite relationships, between PCS, customer and driver. A central and essential element of the service is the provision of a taxi service which has to operate efficiently and be a regular and reliable service. PCS has created an administrative structure for its operation through its control centre and the CORDIC software system. The CORDIC system allows PCS to provide support services to achieve the primary objective of the business. It also provides a processing and payment system and generates data for ancillary and compliance purposes.[60]Sitting in the middle of this operation is PCS which operates as a contractor and hires in account taxis. They are in communication with account drivers to collect passengers and in providing information on their earnings. They advertise and undertake a marketing campaign aimed at obtaining customers for themselves and not for account taxis. Account taxi services are structured differently when compared to the cash business. It introduced a CORDIC system in order to reduce company costs and improve the customer services. The witnesses, in particular Mr Andrew Murray-Playfair and Mr Joe Polley, explained the running of the business in some detail. It is correct to say that Mr Polley suggested that drivers are paying for the services of PCS but this has to be taken in context. The services which they receive, if any, are provided through the XDA facility which has already been rented and on which VAT has been accounted for. The driver obtains the details needed to undertake jobs. There is also satellite navigation system which enables the driver to locate the customer and to find the best route. This is what Mr Polley meant when he said that the XDA has no value without that input. Additionally, the value to the driver is the link which the XDA has to CORDIC in providing financial accounting data. This allows the driver to have an end of year P60, as it were, to complete his tax return.[61]The tribunal finds that the two requirements stated in S.5 (2)(b) VATA 1994 are not fulfilled and the section is not applicable in this case.[64]For these reasons, the appeal is allowed.[65]The appeal constitutes “current proceedings” as defined by paragraph 1(2) of Schedule 3 to the Transfer of Functions and Revenue and Customs Appeals Order 2009 (SI 2009/56). PCS has asked the tribunal to exercise its discretion under paragraph 7(3)(2) of that Schedule to apply Rule 29 of the Value Added Tax Tribunal Rules 1986 and award PCS the costs incidental to and consequential upon this appeal. The Tribunal awards PCS those costs. 62. It is directed that there be a separate costs hearing to determine any other matters including quantum relating to this costs award. TRIBUNAL JUDGE RELEASE DATE: 19 May 2010