In Errol Willy Salons Ltd v HMRC [2022] TC08370, the First Tier Tribunal (FTT) found that the supply of rooms within a salon to beauticians were exempt from VAT. Additional services provided were ancillary to the supply.

  • Errol Willy Salons Ltd (EWSL) let part of the first floor of its premises, consisting of two rooms with sinks and a shower room, to beauticians.
  • These rooms were accessed via a dedicated staircase from the ground floor of EWSL's premises.
  • The beauticians:
    • Provided their own equipment, materials and other products including towels.
    • Were responsible for decorating and cleaning their room using their own products.
    • Set their own prices and opening hours.
  • EWSL provided additional services to the beauticians. These included:
    • Receptionist services.
    • A toilet and staffroom.
    • The display of posters in the window and a price list on a website.
  • EWSL charged rent for one room calculated as 40% of the beautician’s takings. The second room, which was not let in the period under review, was subsequently rented out at 33.3% of the relevant beautician’s takings.
  • HMRC raised a VAT assessment of £18,649 on EWSL on the basis that its supply to the beauticians was a standard-rated supply of facilities and services rather than an Exempt supply of a licence to occupy.
  • EWSL Appealed to the First Tier Tribunal (FTT).

The FTT found that the supply made by EWSL to the beauticians was exempt from VAT:

  • The supply was not precluded from being a supply relating to an Interest in land. The tribunal considered the characteristics of leasing or letting of immovable property established in Stichting ’Goed Wonen v Staatssecretaris van Financiën.
    • The arrangements provided a defined area for the beautician.
    • Although leases were not in place during the period under review, subsequent leases reflected earlier arrangements: there was a right to exclude others from the area.
    • Monthly calculations and payments of rent were undertaken. This implied the rooms were let for a defined period of one month on a rolling month-to-month basis.
    • Rent charges based on a percentage of turnover constituted payment for a defined area.
  • The additional services supplied by EWSL were Ancillary to the supply of the room and not a predominant part of the supply.
    • The rooms were rented unfurnished.
    • EWSL did not actively seek clients for the beauticians or work to increase their takings to any significant extent. The advertising was passive and no cost was incurred by EWSL.
    • EWSL's receptionist dealt with the beautician’s payments only for EWSL’s convenience. This provided EWSL with details of turnover on which rent was charged. The beauticians could have readily dealt with payments on their own.
    • Although they may have been covered by EWSL’s insurance, the beauticians had been told that they needed to make their own insurance arrangements. 

Useful guides on this topic

Mixed supplies: Single or Multiple supply?
Is a mixed supply a single or multiple supply for VAT purposes? What tests and case law apply?

Land & Property VAT (Subscriber guide)
An outline of the VAT treatment of some of the more common supplies of land and property.

Partial exemption & input VAT
How do you calculate the amount of input tax you can recover under the VAT partial exemption rules? What are the de minimis rules?

External link

Errol Willy Salons Ltd v HMRC [2022] TC08370


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