VAT grouping disputes: the implications of HSBC

Key points of principle relating to the interpretation of the UK’s VAT grouping rules have been established by the Upper Tribunal in HSBC Electronic Data Processing (Guangdong) Ltd & others v HMRC. In particular, the UT held that each body corporate eligible for VAT group membership must itself be ‘established’ in the UK and the test of ‘establishment’ should be informed by that used in the place of supply rules. This may make it harder to establish VAT grouping of UK branches with limited resources in the UK to provide group services. The UT also ruled that HMRC’s power to terminate VAT group membership where ‘necessary for the protection of the revenue’ is not limited to abusive scenarios, which may further impact the scenarios in which VAT grouping may be achieved.