VAT on Lap Dancing Vouchers Analysed

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With almost £500,000 at stake, five lap dancing clubs have failed to convince a tax tribunal that they are not liable for VAT on the commission that they charge dancers on the redemption of vouchers which enable punters to carry on spending after they run out of cash.

The clubs, which were all part of the same group, issued face-value vouchers, paid for by credit or debit cards, to clients who had run out of money so that they could continue paying dancers to perform for them. The clubs charged punters a 20 per cent commission for that privilege and also levied 20 per cent from the dancers when the vouchers were redeemed.

The clubs conceded that the commissions made from punters were consideration for a taxable supply. However, it was submitted that the 20 per cent charged to dancers was not, in that the services supplied fell within the narrow compass of ‘dealings in credit guarantees or any other security for money’, within the meaning of the financial services exemption contained in Schedule 9 of the VAT Act 1994.

The First-tier Tribunal (FTT) accepted the club’s plea that the vouchers represented ‘security for money’ and thus fell within the statutory definition. When presented for redemption by a dancer, the relevant vouchers clearly evidenced, albeit implicitly, an obligation by the clubs to meet the value stated on their face.

However, in dismissing the clubs’ appeal, the FTT found that they were not merely providing the dancers with redemption or encashment services but were also providing them with access to a market made up of non-cash customers and the facility to exploit that market.

In VAT terms, the dancers could be viewed as ‘retailers’ in that they supplied services directly to the clubs’ patrons. However, their activities were in practice severely limited in that they could only redeem the vouchers for services supplied on the clubs’ premises. In reality, there was a single supply of services by the clubs to the dancers which was paid for by a combination of entrance fees and the commission charged on the vouchers.