VAT & Fixed Establishments

The Upper Tribunal released its decision in Barclays Services Corporation at the start of the summer, dismissing an appeal against HMRC's refusal to admit a US company to a UK VAT group.
 
Barclays Execution Services, the group's representative member, applied for Barclays Services Corporation to join the VAT group. It is a Delaware corporation operating principally in the United States, which had registered a UK branch five months earlier. Grouping mattered because supplies between members are disregarded, and where the receiving businesses are partly exempt the VAT on intra-group services would otherwise be largely irrecoverable. 
 
Internal material identified a one-off £21 million benefit if the branch became operational before the year end. HMRC refused, on the grounds that there was no UK fixed establishment and, alternatively, that refusal was necessary to protect the revenue.
 
The Tribunal upheld the finding that there was no fixed establishment. The branch had no employees working for it in substance, no control comparable to ownership over staff made available by other group companies, and no access to the systems needed for its intended work. Control must be like ownership rather than access by arrangement with an affiliate, and registering a branch while planning activity for later could not replace resources actually available on the application date.
 
The Tribunal departed from the First-tier Tribunal on revenue protection, holding that refusal would have been reasonably open to HMRC given the branch's skeletal state and an application date driven by the one-off benefit. Staff had been engaged through another group company because starting them with the applicant would have caused delay.
 
HMRC did not win everything. It argued for a reading confining grouping to the UK branch alone. The Tribunal refused, remarking that it was "somewhat strange, to put it mildly" for HMRC to argue that when the UK has long presented its whole entity approach as a competitive feature. That approach survives.
 
For partly exempt groups, the gateway is substance on the application date, not intention. Resources must be present and genuinely controlled, and timing driven by an identifiable benefit invites the revenue protection argument even if eligibility is met.