The taxman can take a bite out of lap dancers’ earnings after a High Court judge ruled today that the clubs where they perform are not liable for VAT.

Spearmint Rhino Ventures, which describes itself as operating a chain of "gentleman’s clubs", won its case that the dancer should pay VAT out of money she takes from her "customers".

The company, which has two clubs in Birmingham, were appealing against a VAT tribunal decision which found Spearmint Rhino was liable for the tax.

Mr Justice Mann, giving his ruling today, described the Spearmint Rhino club in Tottenham Court Road, London, as a "typical example".

"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. At any one time (depending on the day, time and availability) there are between 20 and 140 young women available to provide the entertainment services in issue in these proceedings."

He said the services in question were when one of the dancers provided private dances for the customers for money.

"A fee of #10 is charged for a semi-nude dance; #20 is charged for a nude dance. The dance is arranged as between the dancer and customer. 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."

The judge found that HM Revenue’s argument that the services were supplied by Spearmint Rhino to the customer was wrong.

David Milne QC, representing Spearmint Rhino, had told Mr Justice Mann at a hearing in January that the dancer has to pay the club for the facilities she uses and there was no contract between the club and the men she "entertained".

He said the tribunal had made a mistake in ruling the dancers were Spearmint Rhino’s agents by relying on the degree of control the club has over them.

Each dancer is bound by a Dance Performance Licence, which describes the clubs as operating a "business establishment at the premises where live nude, semi-nude and or bikini dance entertainment is presented to adult members of the general public".

The dancer can book booths at the club to perform but must pay damages if she misses a session.

She also agrees to dance and try to maximise sales and "entertainment" but is subject to a code of conduct.

The judge said in his ruling today that under this code the dancer agrees not to "handle customers" or to allow them to handle her, and not to perform in an obscene or otherwise illegal or unlawful way.

Mr Justice Mann said he agreed with Spearmint Rhino’s case.

"It seems to me to be a very forced construction of events, if it is possible at all, to say that the dancers are contracted as agents for the club."

He said the operation at the clubs tended to suggest that the dancers are performers "plying their self-employed trade at the club in their own right".