VAT grouping needs proactive, informed approach to succeed

The UK’s recent tax tribunal decisions in Barclays Services Corporation & Barclays Execution Services Limited v. HMRC and Beritaz Care Ltd v. HMRC highlight some important points for implementing value-added tax groups in relation to the substantive conditions that need to be met, and the necessary administrative tasks for applying.

VAT grouping has been attractive for businesses in partially exempt sectors such as financial services, care, and property, but multinational organisations are increasingly using it to improve VAT recovery. This was the intention in the Barclays case, and Barclays’ second loss at a tribunal demonstrates the importance of considering and implementing positions correctly before forming a VAT group.

Beritaz, on the other hand, is a timely reminder of the need to proactively manage engagements with the UK tax authority, HM Revenue & Customs.
While VAT grouping can be a valuable tool, Barclays and Beritaz reinforce the need to take a proactive and informed approach, to carefully map out what the intended group is going to look like, and then review all areas where potential for challenge could exist.

For example, does the establishment have enough human and technical resources? Have all the intended members been added to the application? If the answer to these questions is no, then they need to be addressed, because investment up front should mitigate the risk of not having the VAT position you wish for.

In Beritaz, the First-Tier Tribunal considered the strict VAT grouping application rules by looking at whether a request to add a company to a VAT group with retroactive effect was allowed. Beritaz applied on May 8, 2025, for a new member to be added effective May 1, 2021. HMRC accepted the application effective from the date of receipt, and it wasn’t backdated.

HMRC’s refusal to backdate the application was based on its belief that allowing the business to join the group would allow it to avoid, abuse, or evade VAT. This is something that it wasn’t possible to appeal because HMRC’s refusal was an exercise of discretion only and the underlying VAT grouping application had already been deemed granted under UK VAT legislation: It wasn’t a refusal of the VAT grouping application itself.

Therefore, the First-Tier Tribunal couldn’t comment on the position, leading to HMRC’s win.

By contrast, the Upper Tribunal Barclays case focused on the substantive requirements for VAT grouping by:

• upholding the First-Tier Tribunal and HMRC’s refusal to allow the UK branch of a non-UK company to join a VAT group, since it didn’t have the required fixed establishment at the relevant time
• overturning the First-Tier Tribunal’s view that HMRC couldn’t apply “protection of the revenue” arguments to refuse the application
• agreeing that if an overseas entity joins a UK group through a fixed establishment, the whole business joins the group, not just the UK element.

While both cases considered different aspects related to setting up a VAT group, they demonstrate that unless all issues are sufficiently addressed before an application is submitted, it has a significant chance of failing, with potential financial and administrative costs for the affected businesses.

Protection of the revenue. Taken together, the cases highlight HMRC’s robust use of its protection of the revenue powers to challenge VAT grouping structures. While Beritaz references these powers in the context of denying a request for retrospective VAT grouping, the Upper Tribunal in Barclays considered the powers in greater detail, adopting a broader and more flexible approach than the First-Tier Tribunal.

The Upper Tribunal confirmed that HMRC’s protection of the revenue powers is fact-specific and not limited to avoidance or abuse cases. Therefore, HMRC may refuse VAT grouping where a significant VAT loss is anticipated, and the outcome goes beyond what VAT grouping is intended to achieve, provided its decision is reasonable.

HMRC’s whole entity approach to VAT grouping. The Upper Tribunal in Barclays reaffirmed the UK’s whole entity approach to VAT grouping. Where an overseas entity has a UK fixed establishment and joins a UK VAT group, the entire entity (and not just the UK branch) is included.

This contrasts with the EU position and HMRC’s previously stated policy position where only the local establishment is treated as part of the VAT group.

While this now demonstrates a difference between the UK and EU, the UK’s approach is limited by the requirement for the UK branch to be established in the UK. With HMRC’s potentially increased use of its protection of the revenue powers, cross-border VAT groupings will remain an area of HMRC challenge.

• Consider cross-border implications. Given the UK’s whole entity approach, careful thought must be given to cross-border implications, including the extent to which overseas activities become reportable in the UK and create additional obligations. This is in addition to ensuring that the substantive conditions for a fixed establishment are met.
• Plan for accurate applications. The timing, content, and management of the VAT grouping application needs care because there is limited scope to correct errors following submission. The issue in Beritaz occurred because of an administrative oversight that, if caught, could have meant avoiding the whole issue.
• Manage ongoing compliance. Although a single VAT return is submitted for the group, data for all members must be collated within the standard VAT return deadlines. There are no extensions available, and all entities must adhere to the Making Tax Digital requirements.

A group’s composition affects VAT recovery and partial exemption methods, so it’s essential to consider the implications of including or adding members.

For further guidance on the above, please get in touch with your usual Crowe UK contact.

This article was first published on Bloomberg Tax on 23 July 2026.