This month’s update has key themes of continued litigation over VAT grouping and exemption conditions, further clarification of the limits of TOMS and financial-services exemptions, and ongoing policy development in areas such as pension VAT recovery, housing, and online marketplaces.
Summary
- Court of Appeal: HMRC succeeded in overturning two lower tribunal decisions that had allowed Bolt to use the Tour Operators' Margin Scheme (TOMS) on its private hire vehicle bookings for past periods (Bolt Services UK Ltd); separate legislation has in any event excluded PHV and taxi operators from TOMS from 2 January 2026 onwards.
- Upper Tribunal: Barclays failed in its attempt to bring a US group company into a UK VAT group, on the basis that the company had no UK fixed establishment (Barclays Services Corporation).
- First-tier Tribunal: four decisions covered: a stay of Virgin Atlantic's loyalty-scheme appeal behind the Avios litigation; a karaoke operator's failed reduced-rate claim (Lucky Voice); a struck-out appeal over backdating VAT group membership for a care home company (Beritaz Care); and a case showing HMRC's own administrative error did not relieve a taxpayer of a genuine VAT liability (HBS Enterprises).
- CJEU / EU General Court: two judgments: VAT group members must individually meet exemption conditions for care and welfare services (Cavert/Fiscale Eenheid Stichting X), and credit management services provided after a loan sale are not exempt (A Oy).
- HMRC/HMT: updated Input Tax manual guidance on VAT recovery for defined benefit pension scheme costs, and a summary of around 40 measures in HMRC's Tax Update 2026, including VAT consultations on social housing land and marketplace liability.
Court of Appeal
Bolt Services UK Ltd - [2026] EWCA Civ 720
Bolt runs, a ride-hailing app, contracting with self-employed private hire vehicle (PHV) drivers and, separately, with passengers, who have no contractual relationship with the drivers. Bolt argued that its PHV services qualified for the Tour Operators' Margin Scheme (TOMS), so that VAT would be due only on its margin rather than the full fare. Both the First-tier Tribunal and the Upper Tribunal agreed, taking a ‘high-level’ view that passenger transport is broadly the kind of service tour operators provide.
The Court of Appeal allowed HMRC's appeal holding that the correct test is whether the services are identical or, at most, genuinely comparable to those typically supplied by travel agents or tour operators. On the facts already found by the First-tier Tribunal, travel agents and tour operators do not commonly provide on-demand point-to-point rides of the kind Bolt offers, and that finding should have been fatal to Bolt's case. TOMS exists to deal with the practical VAT difficulties faced by businesses combining travel services across borders and applying it to standalone minicab journeys was not necessary to achieve that purpose.
Comment: This is a high-value decision. Bolt's own appeal involved an estimated £190 million, and Uber's parallel, much larger appeal (reported to involve disputed VAT of around £1.45 billion) has been stayed behind it. Any PHV or similar on-demand transport operator currently accounting for VAT on a margin basis should review that position and watch for any further appeal to the Supreme Court. The point is now also academic for future periods: legislation announced at Autumn Budget 2025 and effective from 2 January 2026 has excluded suppliers of taxi and private hire vehicle journeys from TOMS altogether, except where supplied alongside other principal travel services such as accommodation or flights. The Court of Appeal's judgment therefore mainly affects past VAT periods, while the legislative change puts the position beyond doubt for periods on or after 2 January 2026.
Upper Tribunal
Barclays Services Corporation - [2026] UKUT 211 (TCC)
Barclays Services Corporation (BSC), a US company with a UK branch, applied to join a UK VAT group. HMRC refused, on the basis that BSC did not have a UK fixed establishment and, in the alternative, that admitting BSC to the VAT group registration would put the protection of the revenue at risk given the scale of the anticipated VAT saving.
The Upper Tribunal dismissed the taxpayer's appeal, upholding the First-tier Tribunal's finding that BSC had no UK fixed establishment at the relevant time: UK-based staff were not employed by BSC, and the branch lacked ownership or comparable control over the people, premises and systems it used. The Upper Tribunal also rejected HMRC's argument that the VAT grouping rules should be read as subject to an implied territorial limitation following the CJEU's Danske Bank decision, holding that this would cut across a fundamental feature of the UK grouping legislation. On the protection-of-the-revenue point, although not necessary to the outcome, the Upper Tribunal indicated HMRC could reasonably have refused the application given the limited substance of the branch and the size of the VAT saving in issue.
Comment: Groups looking to bring overseas branches into a UK VAT group need to be able to evidence real staffing and operational control in the UK, not simply a registered presence. The case is also a useful read on how far HMRC's protection-of-the-revenue power can be used even where their lack of a fixed establishment argument might fail.
First-tier Tribunal
Virgin Atlantic Airways Ltd - TC 09917
Virgin Atlantic's appeal concerns the VAT treatment of charges it makes to partners participating in its airline loyalty/reward scheme. The issue mirrors a dispute already in progress involving Avios (IAG Loyalty), where HMRC has issued protective VAT assessments on the basis that charges for participation in the Avios scheme are consideration for taxable services, rather than falling outside the scope of VAT or being linked to zero-rated flight redemptions.
HMRC applied to stay Virgin Atlantic's appeal behind the final outcome of the Avios litigation. Applying the established RBS Deutschland test, the First-tier Tribunal found that the Avios decision would be of ‘material assistance’, since both cases raise closely related questions on the Vouchers Directive, Schedule 10B VATA 1994, and the CJEU's MacDonald Resorts decision. The Tribunal granted the stay, rejecting Virgin Atlantic's arguments that the two schemes were sufficiently different, and that delay would prejudice evidence and a claimed repayment of £23.5 million.
Comment: Airlines and other operators of loyalty or reward schemes that charge fees to scheme partners should treat the Avios litigation as the one to watch, its outcome is likely to determine the VAT position for the wider industry, including Virgin Atlantic's own appeal.
Lucky Voice Group Ltd - TC09918
Lucky Voice operates karaoke venues, hiring out private rooms equipped with screens, microphones and speakers on a per-person charge. It sought a VAT repayment, arguing its supplies fell within the temporary reduced rate for admission to cultural events and facilities introduced during the Covid pandemic, either directly or by comparison with tenpin bowling, which HMRC had treated as within the reduced rate.
The First-tier Tribunal dismissed the appeal. It found the private, exclusive-use nature of the rooms meant the supply was better characterised as room hire than a ‘right of admission’, since there was no shared collective enjoyment with other customers. Even looking at the substance of the law more broadly, the lack of any interaction with people outside the customer's own party meant the supply was not similar to the specific cultural events and facilities listed. The Tribunal also rejected the comparison with tenpin bowling and any fiscal neutrality argument, and confirmed Lucky Voice could not rely on HMRC's treatment of a different trade.
Comment: The Tribunal was careful to say it had not ruled out all karaoke-related supplies from the reduced rate, a more open format, with performances to all attendees rather than just a private party, might be assessed differently. Hospitality and leisure operators relying on comparisons with other trades' VAT treatment should note how narrowly that argument was applied here.
Beritaz Care Ltd - TC09922
Beritaz Care is the representative member of its VAT group. In May 2025, it applied under section for a further group company, Robertson Nursing Home Limited (RNHL), to be added to the group with retrospective effect from 1 May 2021. RNHL had been omitted from the original group registration in 2021 due to what Beritaz described as an oversight by its former VAT advisers. HMRC did not respond within the 90-day statutory window for refusing such an application but later confirmed RNHL's membership with effect only from 8 May 2025 (the date of the request), not the retrospective date sought. HMRC's stated reason was that backdating would facilitate a form of VAT grouping it regards as tax avoidance involving state-regulated and non-state-regulated care providers, as set out in Revenue and Customs Brief 2 (2025).
Beritaz appealed, arguing HMRC's position was inconsistent. RNHL's membership was accepted as not being avoidance from 8 May 2025, yet refused as avoidance for the earlier period. HMRC applied to strike out the appeal for want of jurisdiction. The First-tier Tribunal agreed with HMRC and struck the appeal out. Applying the Upper Tribunal's reasoning in Dollar Financial UK Ltd v HMRC [2023] UKUT 256 (TCC), the Tribunal held that because HMRC had not refused the membership application within 90 days, RNHL's membership was deemed granted by statute from the date the application was received (8 May 2025). At that point, there was no longer any application capable of being refused, so HMRC's later decision not to exercise its separate discretion to backdate commencement was not a refusal of ‘an application’ carrying a right of appeal. The Tribunal noted, without deciding, that the position might differ where HMRC refuses backdating within the same 90-day window as it grants membership.
Comment: This is a jurisdictional decision rather than a ruling on the merits of HMRC's avoidance objection to mixed state-regulated/non-state-regulated care VAT groups. The practical lesson is procedural: if HMRC fails to respond to a grouping application within 90 days, membership is deemed granted from the date of the application, but any separate request to backdate that membership further is governed by HMRC's unfettered discretion and is not appealable to the Tribunal once that 90-day window has passed without a refusal. Care groups considering retrospective VAT grouping involving non-state-regulated entities should also note HMRC's continuing scrutiny of such structures under Revenue and Customs Brief 2 (2025).
HBS Enterprises Ltd - TC09893
This case is a reminder that HMRC's own errors do not change a taxpayer's strict VAT position. HMRC had incorrectly recorded HBS's registered address as one of its own offices that specialises in non-established taxable persons (NETPs), rather than HBS's actual UK address in Hayes, Middlesex. As a result, sales made through Amazon were zero-rated on the (incorrect) basis that HBS was trading from overseas, when the business was in fact UK-established and the supplies should have been standard-rated.
HBS argued, among other things, that this resulted in double counting, since Amazon would in principle have accounted for standard-rated VAT itself as principal to the transactions, and that HMRC's assessment had not been made to best judgement because the officer failed to confirm whether Amazon had in fact done so. The Tribunal held that an error by HMRC does not change the underlying legal position: VAT was due from HBS regardless of the administrative mix-up, although it found the assessment had been made to best judgement on the facts. The dispute, originally assessed at around £20,000, is expected to settle at roughly £5,000 once quantification is agreed.
Comment: A registration or address error attributable to HMRC will not, by itself, displace a taxpayer's legal liability for VAT that was genuinely due. Businesses trading through marketplaces should check that their registration details correctly reflect their place of establishment, since this can directly affect whether zero-rating or standard-rating is applied at source.
CJEU / EU General Court
Fiscale Eenheid Stichting X c.s. (Case T-444/25, ‘Cavert’) - judgment 10 June 2026
This Dutch case concerned a VAT group made up of two foundations and three private limited companies, together providing care for people with intellectual disabilities. Only one of the two foundations was formally recognised as an institution entitled to the VAT exemptions for care, nursing and social welfare services. A subsidiary within the group, referred to as Company Y, supplied services to third parties outside the VAT group and claimed those services were exempt, on the basis that it was enough for one member of the group to hold the necessary recognition.
The General Court disagreed. It held that the exemptions in question are tied to the recognised status of the specific establishment providing the services, not to the VAT group as a whole. Extending the exemption to a group member that does not itself meet the recognition conditions would go beyond the simplification and anti-abuse purpose of VAT grouping and would create unfair treatment compared with independent providers who do not benefit from grouping.
Comment: VAT groups in the care, health and welfare sectors cannot rely on one member's regulatory recognition to exempt the supplies of other group members. Each entity's own status needs to be checked against the relevant exemption conditions. While not binding in the UK, this judgement is consistent with the UK’s rule that the status of the company in the VAT group that makes the supply must be used to determine the liability.
A Oy (Case T-184/25) - judgment 17 June 2026
A Finnish bank, A Oy, sold a large portfolio of residential mortgage loans to its wholly owned but separately VAT-registered subsidiary, B Oy, which used the loans as collateral for bond issuances. A Oy continued to service the loans after the sale, including customer service, billing, collection and loan modifications, for a market-rate fee, and treated that fee as exempt as ‘management of credit by the person granting it’.
The General Court held that none of the financial services exemptions in Article 135(1)(b) to (d) of the VAT Directive applied. The credit management exemption is tied to the original lender-borrower relationship; once the loans were transferred to B Oy, that relationship ended, and A Oy's ongoing servicing became a new, separate, taxable supply to B Oy.
Comment: This is a significant decision for securitisation and covered bond structures generally. Where an originator continues to service loans after transferring them to a special purpose vehicle, the servicing fee is now expected to be subject to VAT, which will typically be an irrecoverable cost for the SPV. Groups with these structures should review whether VAT grouping the originator and the SPV, or restructuring the servicing arrangement, could mitigate the impact. While not binding on the UK, the decision would be given due regard by UK Courts. In the UK similar services are accepted as exempt, so it is possible that HMRC use this case to upset the status quo. Please get in touch if you have concerns.
HMRC / HMT
VAT Input Tax manual - defined benefit pension scheme costs
HMRC has updated the VAT Input Tax guidance in its internal manual (the gov.uk ‘VAT Input Tax’ manual) to give further practical detail on the 2025 policy change under which employers sponsoring a defined benefit, or other funded occupational, pension scheme can in principle recover VAT on both administration and investment management costs.
The updated guidance is stricter on documentation: normal VAT invoicing rules apply, and an invoice addressed to a pension trustee cannot simply be reissued to the employer. Recovery depends on the contractual structure: who received the supply, who paid, and whether the paper trail supports that route.
Comment: Employers relying on older or informal arrangements should review their contracts, invoicing and payment flows now, and consider whether historic claims (within the four-year cap) may still be available.
Tax Update 2026: simplification, modernisation and fairness
HMRC's published summary sets out around 40 measures aimed at simplifying the tax and customs system, reducing administrative burdens and modernising HMRC's processes. VAT-relevant measures include:
- A consultation on introducing a new zero rate of VAT for sales of land intended for the construction of social housing
- A consultation on extending the VAT online marketplace liability rules to UK-based businesses, not just overseas sellers
- Reforms to civil information and inspection powers under Schedule 36 FA 2008, including modernising the definition of computer records
Comment: The social housing land measure and the marketplace liability extension are both at consultation stage. Businesses operating online marketplaces, or involved in land transactions for residential development, should monitor these closely and consider responding to the consultations.