Key VAT updates for June 2026

This month’s update highlights a number of important VAT developments across the hospitality/tourism sectors, an important Court of Appeal decision regarding the scope of the Tour Operator’s Margin Scheme, VAT recovery on certain pension scheme costs, and the Barclays Upper Tier case which considered several fundamental VAT principles. Our regular ‘Is it food?’ feature considers a court ruling on dipping pots.

A note from Nick Hart, VAT Partner

The announcement from the government on 21 May regarding the introduction of a temporary reduced rate on certain supplies within the family attraction and hospitality sectors came somewhat as a surprise but has generally been welcomed by affected operators who are now looking forward to increased footfall at their venues during the school summer holiday.

Many such businesses have experienced this temporary change before – during the pandemic when the temporary reduced rate had wider scope than it does for the current implementation, and it was in place for a much longer period. Despite the familiarity of what accommodating the temporary rate change entails, challenges remain this time in interpretating the rules, limited time price reductions, and identifying opportunities to correct the position with regards to tickets already sold for admission to a family attraction during the qualifying period.

Saffery is working with its clients with qualifying activities to ensure correct implementation. If you’d like to discuss, please do not hesitate to get in touch.

Please contact Nick Hart, VAT Partner, if any of the matters covered in this VAT Update and the others we produce each month are of interest or are impacting your business.

Summer temporary reduced rate

The temporary reduced rate for qualifying children’s meals, children’s admission to certain entertainment venues, and general admission to family attractions applies from 25 June to 1 September 2026, inclusive.

Please refer to our Temporary VAT cut 2026 article for further details. HMRC responded to the announcement in May by issuing Revenue & Customs Brief 5, outlining the scope of the measures. A link to the Brief is containing within our web article. HMRC has since issued an impact statement and legislation has been enacted.

HMRC claims victory against Bolt in Court of Appeal decision

Following defeats at the First and Upper Tier Tax Tribunals, HMRC has won its appeal to the Court of Appeal in Bolt Services Ltd [2026] EWCA Civ 720.

Bolt had previously argued with success that its on-demand private hire vehicle (‘PHV’) services are eligible to qualify for the Tour Operator’s Margin Scheme (‘TOMS’), the result being VAT due on the margin made, rather than the full value of the fares charged to customers. HMRC appealed the earlier decisions of the FTT and UT and has now won at the CoA.

The CoA has held that the PHV services are not sufficiently comparable to those of travel agents and tour operators for whom TOMS is designed. In the CoA’s view the previous decisions were based on too broad an approach, and whilst it is acknowledged that TOMS can apply to operators other than travel agents and tour operators, it would only do so where services are directly and genuinely comparable. PHV type services are not services which are typically provided by travel agents and tour operators, and the fact that travel is at the heart of the supply, does not mean PHV services are within the scope of TOMS.

Comments

A significant amount of VAT is involved in the Bolt case, and it remains to be seen whether Bolt will appeal to the Supreme Court. If you operate a similar service and have been applying TOMS to account for VAT on the margin rather than full fare values, we would be happy to review your position with you and discuss the implications of the CoA judgement on your business.

Barclays fail with appeal at Upper Tax Tribunal

Barclays has been unsuccessful with an appeal to the Upper Tax Tribunal (UT) regarding the inclusion of an overseas company within a VAT group.

In Barclays Services Corporation & Anor v HMRC, [2026] UKUT 211 (TCC) the UT considered whether Barclays Services Corporation (BSC), a US company with a UK branch, could join a UK VAT group and, in particular, whether it had a UK fixed establishment at the relevant time.

HMRC refused the application on the basis that BSC did not have a fixed establishment in the UK and, alternatively, on protection of the revenue (POR) grounds. The First Tier Tax Tribunal had previously agreed with HMRC on the fixed establishment point but found that the POR ground was not justified.

The UT dismissed the taxpayer’s appeal, upholding the FTT’s conclusion that BSC did not have a fixed establishment in the UK at the application date. The tribunal found that the UK branch did not have sufficient human and technical resources under its control to constitute a fixed establishment, noting in particular that UK based staff were not employed by BSC and the branch lacked ownership or comparable control over those employees, premises and systems.

The UT also rejected HMRC’s argument that the UK VAT grouping rules should be interpreted to impose a territorial limitation following Danske Bank, holding that this would go against a fundamental feature of the legislation.

On the POR issue, although not necessary for the outcome, the UT indicated that HMRC could reasonably have refused the application given the limited substance of the branch and the significant anticipated VAT savings.

Comments

Of most practical use of the three elements considered by the UT, is the establishment point. Overseas companies are permitted to join UK VAT groups if they have sufficient presence in the UK to create a business or fixed establishment for VAT purposes. The concept of establishment is also relevant for other VAT matters such as place of supply and VAT registration, and whilst there is a significant body of UK and EU jurisprudence on the matter of establishment it is helpful to another UT decision in which the concept was considered, and ultimately found to be lacking in this case.

Whether or not a fixed establishment is created in the UK for VAT purposes is often a subjective question, at the heart of which is the point around to what extent does the company have human and technical resources permanently in the UK.

VAT recovery on pension scheme costs

In our July 2025 VAT Update we commented on HMRC’s change in policy regarding VAT recovery with respect to pension fund management costs. From June 2025 HMRC’s position was to allow VAT incurred on investment related costs (investment management and consultancy) to be recoverable by the sponsoring employer.  VAT would typically be incurred on investment management costs with respect to Defined Benefit Schemes.

HMRC has now updated its VAT Input Tax Manual to reflect its change of view. The updated guidance removes the previous distinction between administration and investment costs for employer recovery purposes, removes the need to apportion investment costs between employers and trustees, and places less emphasis on contractual structuring. Recovery remains subject to the usual requirements with additional clarification for trustees and VAT groups.

Comments

Helpful alignment within HMRC’s Manuals and Revenue & Customs Brief 4 (2025) in which the change in policy was first announced. Historic claims for under-recovered VAT are still possible (within the standard 4-year cap window) but HMRC would expect invoices from investment managers etc to be issued to the sponsoring employer making the claim which may pose a problem with respect to the past. Certainly, employers should consider whether they are currently taking advantage of the opportunity to claim additional VAT back with respect to their Defined Benefit schemes, and whether the current process and arrangements would allow them to correctly do so.

Is it food?

This month’s look into the world of food related tribunal cases takes to KFC dipping pots.

In Queenscourt Ltd v HMRC [2026] UKUT 195 (TCC), the Upper Tribunal (UT) considered whether dip pots supplied as part of KFC takeaway meal deals formed a separate zero‑rated supply or part of a composite standard‑rated supply alongside hot food.

It was accepted that the meal deal itself was a multiple supply. The key issue was whether, within such a transaction, some elements could be grouped together as a single supply whilst others were treated separately.

The FTT had held that the dip pots were ancillary to the hot food and formed part of a single standard‑rated supply. It also considered that some elements of a transaction could be grouped together as a composite supply while others remained separate.

The UT disagreed, finding that this was an error of law. It held that the correct approach is binary: either the transaction is a single composite supply, or each element must be treated as a separate supply. It is not permissible to create a ‘hybrid’ outcome by grouping some elements together while treating others separately.

Applying this approach, the tribunal concluded that dip pots must be analysed separately and were therefore zero‑rated. It remade the decision and allowed the taxpayer’s appeal.

Comment

The decision includes a detailed analysis of the single/multiple supply framework and rejects the possibility of partial grouping of elements within a transaction.

Businesses with composite or bundled offerings may wish to reassess whether individual components should be analysed separately. Where a bundle is a multiple supply, elements that would be zero‑rated if supplied on their own may retain that treatment, potentially giving rise to repayment claims.

The single/multiple supply argument remains a forever complex one for VAT purposes. Taxpayers and HMRC will invariably not agree on the position, hence the high frequency of cases going to Tax Tribunal where there is a single/multiple supply matter at the centre of the issue.

Reader Q&A

“The last time we had a temporary reduced rate of VAT, there was a phased re-increase to 20%, with a period where a 12.5% rate applied. Do you think the same will happen this time, or do you think government may keep the rate at 5% for an extended period or indefinitely ?”

Nick Hart, VAT Partner:

I think it’s unlikely that there will be any changes to the measures and that after 1 September the VAT rate which applies to the services which qualify for the temporary reduced rate, will revert back to 20%. The government has pitched the measures as a summer holiday initiative, intend to make visiting family attractions more affordable for families during the school summer holiday period.

Despite continued lobbying from the sector, government appears reluctant to allow the reduced rate of VAT to apply permanently in the hospitality and tourism sectors. The UK’s position of applying the standard rate of VAT as the default is not in line with many European countries which apply a reduced rate to hospitality and tourism services, and it is felt by the sector. This puts the UK at a disadvantage, particularly when the sector is generally struggling for a number of reasons. Despite sector pressure though, a permanent switch to the reduced rate appears unlikely.

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How Saffery can help

Thank you for reading this month’s update. We share these insights each month to help you stay ahead of developments that could shape your compliance, planning and day‑to‑day business operations.

If you’d like support with any aspect of your VAT position, or want Nick and the team to answer your question in the next edition, simply use the submission form or get in touch to arrange a short advisory conversation.