The UK has historically operated a “whole entity” approach to VAT grouping. That means that the UK has treated the whole of the overseas entity that has been UK grouped as a result of its UK fixed establishment as being part of the UK VAT group. That approach was called into question in Danske Bank, but the UK, following a 2020 consultation, decided to maintain the UK “whole entity” approach. However, in Barclays Service Corporation v HMRC [2026] UKUT 211, HMRC did not like the result of that approach and has argued, entirely contrary to its settled, published position, that the UK legislation should be read in a way that conforms with the EU position by limiting it to UK only establishments. Against that background, it is not surprising that the Upper Tribunal suggested that HMRC’s approach in this case was “somewhat strange, to put it mildly”. Fortunately, the Upper Tribunal has agreed with the FTT that the UK VAT grouping rules cannot be read in a way that limits VAT grouping to UK entities – a conforming construction of the rules would “go against the grain of the legislation and conflict with one of its fundamental features”.
In this edition, as well as looking at the decision in Barclays Service Corporation, we also cover the following developments:
- A decision of the UT that it is not possible to apply the single supply approach to treat one element of a multiple supply as ancillary to one other element of that otherwise multiple supply
- The latest CJEU decision on the interaction of VAT with transfer pricing adjustments
- An AG opinion that transferring a business via intermediate owners prevents the operation of the TOGC rules
- An FTT decision concerning the basis on which HMRC make repayment claim determinations and a taxpayer’s ability to appeal such determinations
- An FTT decision highlighting the difficulties for a customer seeking to recover overcharged VAT directly from HMRC rather than their supplier; and
- HMRC’s decision to appeal the FTT decision in in Charge My Street Limited that public EV charging may benefit from the lower 5% rate of VAT.
In addition, we produce more detailed reports on the most significant tax developments so if you scroll to the bottom, there's a list of the most important issues we have covered, with links to our more detailed reports.
If you are interested in finding out more about the below or have a specific indirect tax query, please don't hesitate to get in touch.
VAT grouping and overseas entities
In Barclays Service Corporation v HMRC [2026] UKUT 211, HMRC attacked the particular VAT grouping arrangements on three fronts. HMRC argued that BSC did not, on the facts, have a UK fixed establishment when it sought registration, even if it did then the UK rules should be read consistently with Danske Bank (and inconsistently with HMRC’s settled position) and finally that HMRC could, in any event, deny VAT grouping for protection of the revenue reasons.
On the specific facts of the case, HMRC were successful as the evidence showed that BSC did not, at the date of the request, have sufficient human and technical resources available to it in the UK to give rise to a fixed establishment. (The FTT and UT have, to some extent, dodged the more interesting question of what exactly is required to amount to a “fixed establishment” for the purposes of the grouping rules.) However, as explained above, the UT rejected HMRC’s back up argument that the grouping rules should be read in a way that conformed to the Danske Bank case and limited to UK establishments and not the wider entity.
Finally, the UT suggested that the FTT had been wrong to decide that HMRC would not have been within its powers to deny grouping on protection of the revenue reasons if BSC had had a fixed establishment. The UT stressed the FTT should only interfere with HMRC’s decision to use its protection of the revenue powers where HMRC could not reasonably have reached the decision to deny grouping under the provisions. HMRC were entitled to take into account all the circumstances and the UT considered that, in this case, the comparative lack of substance compared to the size of the VAT saving and the express intention to generate a large, one-off VAT saving were aspects which strongly indicated that HMRC could reasonably have reached the decision in question.
Read our Insights article in full
Ancillary elements of a mixed supply
No sooner does one decision concerning the application to the single supply rules to one aspect of a composite supply come along than it is immediately followed by another. However, unlike buses, this second decision takes a different direction and reaches a different destination. In Queenscourt Ltd v HMRC [2026] UKUT 195, the Upper Tribunal has held that the single supply approach does not allow one element of a transaction to be treated as ancillary to another element where there is no overall principal element. As such, it was not open to HMRC to argue that a dip pot was ancillary to the main hot food component of a meal deal whilst accepting that other elements of the meal deal constituted separate supplies.
This can be contrasted with the earlier decision in Clearwater Hampers Ltd v HMRC where the FTT held that an item (a wicker basket in this case) could be ancillary to two different parts of a multiple supply (zero-rated food and standard rated food and drink), concluding that there is nothing in principle to prevent an item being ancillary to two separate supplies and therefore, on the basis of the Card Protection Plan single supply analysis, part of two separate single supplies. Whilst an element being ancillary to two separate supplies which are part of a multiple supply is not quite the same as an element being ancillary to one other supply which is part of a multiple supply, it would be a surprising outcome if VAT jurisprudence allowed the one and not the other.
Separately, the UT has also doubted the earlier decision in Zeman suggesting that an FTT may have jurisdiction to hear legitimate expectation arguments in circumstances where the underlying substantive assessments are made on a “best judgment” basis.
Read our Insights article here
VAT and transfer pricing: uncertainty remains
The question of how VAT applies to transfer pricing adjustments between related companies has given rise to much uncertainty. And unfortunately, the recent CJEU decision in Stellantis Portugal (Case C-603/24) has not provided the level of clarity that many had hoped for. The CJEU has suggested that the TP adjustments might amend the price of the original supply, rather than being consideration for a separate supply of services. However, unlike the AG in this case, the CJEU has not offered wider comment on the interaction of VAT and transfer pricing adjustments outside the context of this case, leaving each case to be determined on its facts. This may be something of a missed opportunity.
Ultimately, the answer to the question how transfer pricing adjustments interact with the VAT system will still be "it depends”. In principle, a number of options are possible depending on the particular circumstances and contractual arrangements, including adjustments being outside the scope of VAT, an adjustment to the consideration for a previous supply or consideration for a separate supply.
Read our full Insights article here
TOGCs and composite transactions
Can a business be transferred from one entity to another via intermediate transactions and retain TOGC treatment? The taxpayer in DB v Dyrektor Krajowej Informacji Skarbowej (Case T-366/25) transferred their business via their children into a partnership and argued that this should qualify, pointing to earlier CJEU jurisprudence where the Court has taken a broad, economic reality approach to analysing a composite transaction. For example, in Mydibel SA v Belgium (Case C-201/18) the Court held that a sale a leaseback transaction may be regarded as a single transaction for the purposes of determining whether a person has disposed of property in the context of the operation of the capital goods scheme.
The AG has argued that this approach should not be adopted here, however. The AG argues that the VAT system should be applied to the individual elements of the transaction rather than the transaction as a whole, citing risk of abuse and difficulties of where to draw the line if applying a composite transaction approach. However, several of the AG's objections in this case appear to be focussed on the fact that this is an appeal against an advance ruling, such that the transaction might not actually take place as envisaged. These objections would have less force where the transactions had already taken place (but in any event there seems no reason in principle why any clearance should not be conditional on the transactions taking place as envisaged). It will certainly be interesting to see which approach the CJEU adopts.
Payable input VAT claims
Holiday Booking Management Ltd v HMRC [2026] UKFTT 587 raises an important procedural issue around HMRC’s ability to adjust claims for payment of excess input VAT and how a taxpayer unhappy with HMRC’s decision to adjust a claim should be able to appeal that decision. The case concerns a strike-out application by HMRC in connection with alleged overclaims of input VAT. In essence, the taxpayer claimed that HMRC’s final decision to refuse a repayment of excess input VAT was subject to the time limits on assessments. HMRC argued that the refusal to pay does not involve any assessment at all, merely an adjustment of the credit allowed and therefore the time limits applicable to assessments are irrelevant.
The FTT has dismissed HMRC’s strike out application. The FTT noted that while HMRC characterised their action as an adjustment under VATA 1994 s.25(3), s.25(3) defines a VAT credit and does not provide a procedural framework for adjustments. Furthermore, the FTT were not persuaded that the case law on HMRC’s ability to carry out checks before making payments applied where the adjustment is envisaged to be final, rather than subject to checks. As a result, the FTT concluded that the taxpayer has an arguable case that the decision should fall within the relevant time limit in VATA 1994 s.73.
Recipient claims for overpaid VAT against HMRC
The decision of the FTT in Dowey v HMRC [2026] UKFTT 00626 is a reminder that a recipient of a supply who has been overcharged VAT does not have an automatic right to recover that overcharged VAT from HMRC. The taxpayer in this case sought to reclaim VAT on aspects of the construction of a new dwelling from HMRC under the DIY Housebuilders scheme. HMRC denied recovery on the basis that the supplier should not have charged VAT. The taxpayer appealed that decision on the grounds that the 4-year correction limit meant the supplier could no longer correct the VAT error, leaving him without a remedy via the supplier.
HMRC has successfully applied to strike out the appeal on the basis that the FTT did not have jurisdiction to consider the appeal by the recipient of the supply under VATA 1994 s.80. Although the original claim was made under the DIY housebuilders scheme, the appeal was, in substance, a challenge to HMRC’s refusal to refund VAT alleged to have been incorrectly charged by the supplier, which necessarily depended upon there being a valid claim under s.80. Since the case law (including HMRC v Earlsferry Thistle Golf Club [2014] UKUT 250) made it clear that only the supplier could bring such a claim under s.80, the application must be struck out.
The Reemstma principle under EU law, in principle, allows the recipient of a supply to recover overpaid VAT from the tax authority where it is impossible or excessively difficult to recover it from their supplier, but (a) this generally applies where the supplier has gone insolvent and (b) HMRC take the view that this principle can no longer be relied on in the UK post-Brexit and (c) it is unclear if such a claim can be made in the FTT. The decision might be contrasted with the decision not to strike out a similar claim where the supplier was insolvent in Poulton v HMRC [2025] UKFTT 240.
VAT and EV charging
HMRC has published Revenue and Customs Brief 4/2026 announcing their intention to appeal the decision in Charge My Street Limited v HMRC [2026] UKFTT. In that case, the FTT held that, contrary to HMRC's explicit guidance, supplies made by a provider of electricity to EV owners at public charging points is, in principle, subject to the VAT reduced rate of 5% for supplies of domestic fuel. The FTT accepted the taxpayer's argument that these supplies fell within the scope of Note 5(g) to VATA 1994 Schedule 7A Group 1 as deemed domestic supplies. However, where such supplies were made via third party apps on terms that provided that the EV charging supplies were made by the app, then those supplies fell outside the scope of Note 5(g) due to the de minimis threshold contained in that provision.
HMRC’s position remains that charging electric vehicles at public charge points is standard rated for VAT and HMRC has applied for permission to appeal.
Read Revenue and Customs Brief 4/2026 in full
Other issues we have recently covered
Voluntary liquidations and SDLT group relief
The FTT has held that arrangements involving a voluntary liquidation put in place to prevent an SDLT degrouping charge arising on the sale of a subsidiary did not trigger the targeted anti-avoidance provisions in FA 2003 Sch 7 para 2(4A) nor did they trigger the anti-avoidance provisions in s.75A : HC-One No.1 Ltd v HMRC [2026] UKFTT 678. The subsidiary had been set up to combine the group’s various care home businesses into one convenient entity for an ultimate sale outside the group. The FTT considered that, based on the clear language of the statute, the liquidation which triggered the degrouping was not “tax avoidance” but simply a fiscally attractive option provided by the clear language of the statute. As regards s.75A, the FTT considered that the liquidation and sale of the subsidiary were not “scheme transactions” in connection with the initial intra-group transfers of the properties to a single subsidiary in order to package the businesses for sale.
Making the foreign branch exemption compulsory
The government has announced that, for accounting periods beginning on or after 1 January 2027, UK resident companies with a foreign permanent establishment (PE) will be required to exempt the profits and losses from those PEs. For UK-resident companies that conduct activities in relation to oil and gas extraction and exploration through foreign PEs this measure will apply from 1 September 2026. The change is designed to prevent losses attributable to such foreign PEs being utilised in the UK whilst foreign profits are not similarly taxed.
Revised version of SP 1/01 published
HMRC has published a revised Statement of Practice 1 (2021) (SP 1/01). The revised version generally applies from 1 January 2026 and is the result of extensive consultation following changes made to the UK PE definition and, in particular, a broadening of the UK definition of a dependent agent permanent establishment.
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