VAT and the Errol Willy hair salon case: The land-related supply exemption holds firm

Key points

• Errol Willy Salons’ victory may be superseded by changes in legislation.
• HMRC claimed that Errol Willy had added too many additional services to the beauticians using his rooms – changing the character of the supply.
• The facts of the case were distinguishable from the facts in Byrom.
• The Mesto case provides the predominance test to apply in characterising a supply for VAT purposes.

I recently represented Errol Willy Salons Limited (Errol Willy) in an appeal in the First-tier Tribunal following HMRC’s decision to assess the company for VAT allegedly under-declared on income from room rentals. Happily the appeal was successful but the case demonstrates the scope of HMRC’s ambition to narrow the exemption which applies to land-related supplies.

The department’s pursuit of tax in this case coincided with the government’s recent call for evidence on the scope of the VAT exemption for land suggesting that the...