Sauna girls are given tax break by top judge

A JUDGE has ruled that sauna girls in the Capital are not liable for VAT payments over their cut from door fees paid by customers.

Bosses at the Scorpio Leisure sauna in Leith contested a ruling by the Inland Revenue that the entry money should be taxed in full on them alone.

Ian and brother Charles Haig argued that almost half the cash went back to the girls offering services at the Albion Road parlour, making them liable for any extra VAT costs.

A tax tribunal had found that the brothers, as director and secretary of owners Joppa Enterprises Ltd, were liable for costs on the whole fee despite sharing it.

Judge Lady Paton rejected their lawyer's argument and ruled that the bosses had only a "private agreement" with each "hostess" to split the money and were therefore solely liable for tax.

The Haigs brought the legal action to the Court of Session in Edinburgh to appeal a decision by Her Majesty's Revenue and Customs over VAT taxes.

In her judgement, Lady Paton set out the practices at the sauna, which she said had police approval and was licensed by the city council. Customers were greeted at reception by one of the Haigs and the entry fee was "calculated on a sliding scale" – £20 for 30 minutes, £25 for 45 minutes, and £35 for 60 minutes.

Customers were then entitled to "saunas, showers, non-alcoholic refreshments, television, newspapers, the company of a hostess during a 'sit down' in the general lounge area".

The customer could then negotiate "additional services" in a private room complete with "a bed, mirrors, and spa-bath".

From the entry fee, £5 was kept by the owners for letting the customer use the premises, while another half was retained as "rent" paid by the girls for the room. The women kept the rest.

Tax chiefs ruled that the girls were self-employed and no suitable contract existed with the owners over who was responsible for VAT during a tribunal in April 2007.

The Haigs appealed, arguing that they did not keep the whole fee and that tax chiefs did not count "income for sexual services" provided by the women as part of their profits either.

Instead, their lawyers contended that the sauna girls' share of the door charge should be "aggregable to the self-employed hostess' income for VAT purposes".

Lady Paton, though, ruled that the fee was paid by the customer to the bosses for "access to the premises and permission to enjoy everything therein", including "the services of a hostess" in private. She added that any splitting of that cash afterwards was a "private agreement" and the bosses were liable for VAT on the full amount.

Ian Haig, a former Merchant Navy sailor who drives an Aston Martin, and Charles Haig, of Seaview Crescent, Joppa, were both at Scorpio Leisure yesterday when the Evening News called at the premises. Ian Haig said they had "no comment" to make.

Carl Bayley, editor of Taxcafe Business Tax Savers, a tax advice service, said: "The difficulty for the owners was the lack of a formal contract to show that half of the money was flowing to the girls.

"Without that contract, it's really the customer's perception that matters. If they pay a flat fee, a customer expects that to be for a single service. I expect that is why Customs and Revenue won the case."

It is not known whether the owners will need to pay VAT back-taxes, or much how the sum may be. An HMRC spokesman said: "It is possible that there may be an appeal against the tribunal decision and further comment is not appropriate."