HMRC wins adult entertainment VAT ‘loophole’ court case

HM Revenue & Customs (HMRC) has welcomed the decision to close a VAT ‘loophole’ after Wiltonpark LTD, owner of five London-based ‘gentlemen’s clubs’ branded ‘Secrets’, lost its tax battle when the court ruled against arrangements that sought to avoid value-added tax. The company now faces a tax bill estimated at more than half a million pounds.

Wiltonpark issued vouchers to their customers to pay the dancers and the club, then charged the self-employed dancers a 20 per cent fee to cash-in the Secrets branded ‘money’. The club argued that the fee charged didn’t attract VAT as they were simply holding the money safely on the dancers’ behalf.

However, the Court of Appeal agreed with HMRC that the club’s income from charging dancers for redeeming the vouchers is in fact taxable.

Commenting on the court’s decision, Jim Harra, Director General, Customer Strategy and Tax Design at HMRC, says: “HMRC always intervenes when it seems to us that tax due under the law is not being paid. This is a prime example. Our work ensures that everyone pays the tax due, creating a level playing field for all businesses.

“We’re investigating clubs who use similar schemes and there’s a potential tax liability running into the millions at stake – money that is needed to pay for the UK’s vital public services.”

If you are concerned about a tax enquiry into your affairs, worried that you may have possibly under-declared or, worse still, are you already under enquiry, our tax specialists, some of whom are former HMRC Inspector of Taxes, are well versed in dealing with all types of tax issues. We are also readily available to oversee HMRC disputes on your behalf, as well as to represent clients in appeal proceedings before the Tax Tribunal. In some situations we can also offer professional fee protection insurance, so the costs are covered in whole or in part.

For more information and to discuss your tax affairs in further detail, please contact your usual Beavis Morgan Partner.