Barclays Services Corporation v HMRC: Upper Tribunal dismisses VAT grouping appeal over skeletal UK branch

The Upper Tribunal (Tax and Chancery Chamber) has dismissed an appeal by Barclays Services Corporation ("BSC") and Barclays Execution Services Limited ("BESL") against HMRC's refusal to admit BSC to the Barclays UK VAT group. The case, [2026] UKUT 00211 (TCC), decided by Mr Justice Rajah and Judge Thomas Scott, raises important questions about what constitutes a fixed establishment for VAT grouping purposes, the reach of the UK's "whole establishment" approach, and the limits of HMRC's protection of the revenue power.

BSC is a Delaware corporation operating primarily in the United States which, as part of a wider Barclays restructuring programme, registered a UK branch at Radbroke Hall, Knutsford in July 2017. On 1 December 2017, BESL applied for BSC to join the existing Barclays VAT group. HMRC refused, on the basis that BSC had no fixed establishment in the UK at the relevant date and, alternatively, that admission would be necessary for the protection of the revenue. The First-tier Tribunal upheld HMRC's refusal on the fixed establishment ground, though it indicated that the protection of the revenue ("POR") refusal would not have been reasonable had a fixed establishment been found to exist.

Three issues were before the Upper Tribunal: whether BSC had a fixed establishment in the UK on 1 December 2017; whether HMRC could reasonably have refused the application under the POR power; and whether section 43A of the Value Added Tax Act 1994 could be construed conformably with Article 11 of the Principal VAT Directive so as to impose a territorial limitation in line with Danske Bank A/S, Danmark, Sverige Filial v Skatteverket (Case C-812/19).

On the Danske Bank issue, the Upper Tribunal agreed with the FTT that a conforming construction was impermissible, though for different reasons. Where the FTT had relied on the practical repercussions of imposing a territorial limitation, the Upper Tribunal held that the correct reason was that such a construction would go against the grain of the legislation. The whole establishment approach is a fundamental and cardinal feature of the UK grouping rules: section 43 and section 43A are framed by reference to bodies corporate, not establishments, and Parliament's deliberate choice to extend grouping to overseas companies with a UK fixed establishment cannot be unpicked through a Marleasing construction. The Tribunal noted, with some candour, that HMRC's pursuit of this argument sat oddly alongside its own published policy confirming the whole establishment approach as recently as November 2025.

The fixed establishment appeal failed on the facts. BSC argued that its branch had sufficient human and technical resources on 1 December 2017 to satisfy even the more generous test proposed by its own counsel, namely whether the branch had actual or comparable control over resources capable of making a meaningful commercial contribution to BSC's business. The Upper Tribunal upheld the FTT's findings in their entirety. On that date, Ms Hadjikakou, the designated head of the branch, was legally employed by BESL rather than BSC, a consequence of a conscious decision taken to meet a year-end deadline for a one-off £21m tax benefit. A contract back-dated to 1 December 2017 and signed in January 2018 could have no retrospective legal effect. The branch had no comparable control over premises, computers or telephone equipment at Radbroke Hall, and the evidence showed that Ms Hadjikakou had no involvement in a key call about the branch's intragroup agreements held on 4 December 2017. Mere access to facilities is not comparable control; what is required, applying Welmory, is control akin to ownership under arrangements that cannot be terminated at short notice.

On the POR issue, which was academic given the outcome on fixed establishment, the Upper Tribunal disagreed with the FTT's indicative conclusion. Had a fixed establishment been found, HMRC could reasonably have refused the application. The anticipated VAT savings were very considerable, the branch's resources on the application date were skeletal, and the timing of the application had been driven expressly by the opportunity to capture a one-off pre-year-end tax benefit described internally as a "financial imperative". Those factors, taken together, placed the application outside the normal consequences of VAT grouping.

The Tribunal also offered obiter observations that Mr Hitchmough KC's formulation of the fixed establishment test sets too low a bar, as it effectively marginalises the place of supply case law which Parliament intended to inform the meaning of the term in section 43A.

Barclays Services Corporation & Anor v The Commissioners for His Majesty's Revenue and Customs [2026] UKUT 00211 (TCC). Heard 5, 6, 9 and 10 March 2026. Judgement delivered 8 June 2026. Andrew Hitchmough KC and Zizhen Yang (Slaughter and May) for the appellants; Hui Ling McCarthy KC, Michael Ripley and Edward Waldegrave (HMRC) for the respondents.