7 July 2026 • 2 minute read
UK VAT Grouping – Fixed establishment and protection of the revenue
The appeal concerned whether Barclays Services Corporation (BSC), a US group company with a UK branch, could join the UK VAT group of Barclays Execution Services Limited (BESL) from 1 December 2017.
HMRC rejected the application on two grounds: first, that BSC did not have a UK fixed establishment; and secondly, that admitting BSC would be contrary to the protection of the revenue provisions.
Barclays argued that the VAT grouping concept of fixed establishment should be interpreted more flexibly than the concept of fixed establishment under place-of-supply rules. HMRC contended that established place-of-supply principles applied and that BSC’s UK presence lacked the necessary resources and permanence at the time of making the application.
The Upper Tribunal concluded that the First-tier Tribunal had been entitled to find that BSC’s UK branch did not possess sufficient human and technical resources on the application date. The appeal on the fixed establishment issue was therefore dismissed. The Tribunal also held that HMRC could reasonably have relied on its protection of the revenue powers, overturning the FTT’s contrary conclusion.
However, it rejected HMRC’s argument that the UK VAT grouping rules should be interpreted as applying only to a UK establishment of an overseas company following Danske Bank. In doing so, it effectively endorsed the UK’s longstanding “whole establishment” approach to VAT grouping, which remains reflected in HMRC’s published guidance notwithstanding Skandia and Danske Bank.
Key takeaway / recommendation
Businesses seeking to include overseas entities in UK VAT groups should ensure that any UK branch has demonstrable human and technical resources, operational control and sufficient permanence before an application is made. The decision confirms that substance will be tested rigorously and that HMRC’s protection of the revenue powers may remain a hurdle where substantial VAT savings (due to VAT grouping) are expected. Multinational groups should review existing and proposed VAT grouping structures in the light of this judgment.
