Barclays Bank PLC v The Commissioners For HMRC

Whether an accounting treatment reflects a transaction’s substance and economic reality is an objective, context-sensitive inquiry. Contemporaneous views may cross-check a conclusion reached from objective evidence, but do not replace that analysis. A package price need not always be allocated across every element; negotiations may show that one element was provided as an inducement. On appeal, the Upper Tribunal may not substitute its own factual assessment merely because it would have reached a different result. It may intervene where an error in considering relevant or irrelevant factors might have affected the outcome, without a separate perversity requirement.

Barclays Bank PLC (BBPLC), a bank subsidiary of Barclays PLC, issued £3bn of reserve capital instruments (RCIs) during the 2008 financial crisis. Barclays PLC separately issued warrants to the investors who subscribed for the RCIs. BBPLC accounted for £800m as attributable to the warrants and £2.2bn as the value of its RCI liability, recognising an accruing discount for corporation tax purposes. The First-tier Tribunal (Tax Chamber) found that the £3bn was paid for the RCIs alone and that the accounts did not comply with generally accepted accounting practice.

BBPLC appealed, arguing that the FTT’s conclusion was perverse or resulted from irrelevant or omitted factors. The Upper Tribunal considered whether the FTT was entitled to find that the £3bn was paid only for the RCIs. The relevant loan relationship provisions were in Part IV of the Finance Act 1996.

1. Appeal allowed in part. Ground 1 failed: the FTT’s conclusion that the £3bn was paid for the RCIs alone was not the only conclusion reasonably open to it. Ground 2 succeeded because errors in the FTT’s evaluative reasoning might have affected its conclusion. The FTT’s decision was set aside.
2. The Upper Tribunal applied the appellate restraint described in Edwards v Bairstow [1956] AC 1, Fage UK Ltd v Chobani [2014] EWCA Civ 5 and Volpi v Volpi [2022] EWCA Civ 464. An appellate tribunal cannot substitute its assessment simply because it might have reached a different conclusion. It must read the FTT’s decision fairly and as a whole. For an error based on irrelevant considerations or omissions, the error must be material in the sense that it might have affected the result; no additional perversity requirement applies, as explained in Degorce v HMRC [2017] EWCA Civ 1427 and Wm Morrison Supermarkets PLC v HMRC [2023] UKUT 20 (TCC).
3. The substance and economic reality of a transaction must be assessed objectively and in context. Subjective beliefs do not determine the answer, although contemporaneous views may provide a cross-check against a conclusion reached from objective evidence. The relationship between Barclays and BBPLC was relevant to identifying the substance of the arrangements with the subscribers. A package price does not necessarily have to be allocated across every component: the negotiations and wider context may indicate that one element was provided as an inducement. The fact that the transaction in Marks & Spencer plc v HMRC [2019] UKUT 182 was treated as a package did not establish a universal rule for package deals.
4. The FTT had made errors by treating press comment about value given up by Barclays shareholders as part of its substantive analysis rather than as a cross-check; treating it as important whether Barclays or its shareholders gave up the warrant value; relying on an observation in PCP Capital Partners LLP & Anor v Barclays Bank PLC [2021] EWHC 307 (Comm) that the warrants had been given away, although that case concerned whether Qatar had received a better deal than PCP; and reasoning that the warrants could be a sweetener only if they were given away. Other matters, including the contractual terms, the negotiations and the institutional investors’ subscription, were relevant considerations whose weight remained for the FTT.
5. The matter was remitted to the FTT to reconsider Issue (1) in accordance with the Upper Tribunal’s findings, clarify Issue (4), and determine Issues (2), (3) and (5).

1. Upper Tribunal (Tax and Chancery Chamber): Allowed the appeal on Ground 2, set aside the FTT’s decision and remitted the matter for reconsideration of Issue (1) and determination of Issues (2)–(5), including clarification of Issue (4).
2. First-tier Tribunal (Tax Chamber): Decision released on 26 April 2024; found that the £3bn was paid for the RCIs alone and that BBPLC’s accounting treatment did not comply with GAAP. No citation for that decision is stated in the judgment.