By Joshua Rozenberg, Legal Editor12:01AM GMT 23 Mar 2007
Taking a close look at lap dancers persuaded a High Court judge today that “gentlemen’s clubs” such as Spearmint Rhino are not required to pay VAT on their dancers’ services.
Since the “partially clad women” who work at lap dancing clubs are unlikely to pay tax on the value they add to their customers’ lives the ruling may leave the Revenue and Customs commissioners in need of some entertainment themselves.
Allowing an appeal by Spearmint Rhino against a ruling that the club itself had to pay VAT on the fees received by dancers, Mr Justice Mann said the case had the by-product of enabling the judiciary to fill in some of the gaps in its knowledge “demonstrated, but teasingly left,” by a judgment from 2005.
In that case — a dispute between a businessman and a lap dancer — Lord Justice Wall maintained that he would not, “of course”, begin to know exactly what the dancer’s job involved.
“One can guess at it, but could not faithfully describe it,” the judge said.
He relied on an earlier ruling by Judge Harris, who said the purpose of a lap dancer was “to tease but not to satisfy”.
Today, Mr Justice Mann lifted the veil on the Spearmint Rhino club in Tottenham Court Road, central London — a “typical example”, he said.
“A member of the public pays £8 for admission and on entering goes into an area in which he — or she — may drink, socialise, eat and watch partially-clad women dancing on a podium,” the judge observed.
Of greater interest to the judge, however, were activities “provided as a result of more direct engagement between the women and the customer”.
These were “private dances”, lasting about three minutes, and charged at £20 for a nude dance or £10 for semi-nude.
“In addition to those services, the dancer and the customer can agree what is called a "sit-down".
For £250, a sum which is in fact negotiable, a woman can be engaged to sit and socialise with the customer for an hour.
All the dancers were self-employed, the judge noted. They paid a fee of £15 to the club for a daytime session and £80 for an evening session, plus £40 for a sit-down.
In exchange, the club provided the premises, a “house mother” who helped to advise and look after them and security staff who would “apparently assist in the persuasion of a customer who might otherwise be minded not to pay”.
Each dancer agreed not to “handle customers” or to let a customer “handle” her. Customers had to be seated in a particular way and dancers could touch customers only “above the customer’s chest”. HM Revenue and Customs had persuaded a lower tribunal that the dancers’ services were supplied by Spearmint Rhino through dancers engaged by the club.
It followed that the club was required to charge VAT on their services.
But Mr Justice Mann decided that the dancers were operating their own businesses rather than acting as agents for the club.
“The evidence clearly demonstrates that the dancer chooses her own customers,” the judge said. “While she is expected to carry out sufficient performances to further the objects of the club, she is nevertheless, within that constraint, free to decide how many customers she dances for.
“She decides whether or not she has a sit-down with a customer, and can negotiate a fee which departs from the standard fee. She keeps that fee.
The fact that she is obliged to pay £40 to the club does not mean that she negotiates the sit-down on behalf of the club. She negotiates it on behalf of herself.”
It followed that Spearmint Rhino “does not make a supply of services for VAT purposes”.
Revenue and Customs said it would consider the ruling carefully “before deciding on what further action to take, including whether to appeal”.
A spokesman confirmed that dancers would not have to charge VAT unless they were earning more than £64,000 a year but could not say how much money Revenue and Customs would lose as a result of the ruling.