Agreeing with an earlier Upper Tribunal decision, the Court of Appeal (CoA) found that VAT was due on services provided between two companies that were members of the same VAT group as the services were not invoiced or paid until after the supplier had left the group.
In The Prudential Assurance Company Limited v HMRC [2024] EWCA Civ 300, Prudential was the representative member of a VAT group that included Silverfleet Capital Ltd.
- Silverfleet provided fund management services to one of Prudential’s funds and was entitled to a performance-related fee.
- In 2007, Silverfleet Capital Ltd left the Prudential VAT group after a Management buy-out. No management services were delivered after this point.
- In 2014 and 2015, the benchmarks for performance fees were finally met, triggering performance payments of £9 million.
- The question was whether VAT the payments for Silverfleet’s services were outside the scope of VAT because the services were rendered while Silverfleet was a member of the Prudential VAT group, or whether the payments were within the charge to VAT because they were invoiced and paid after Silverfleet had ceased to be a member of Prudential’s VAT group.
- HMRC said there was a Continuous supply of services and VAT had to be charged on the performance fee when it was invoiced and paid.
- Prudential successfully Appealed to the First Tier Tribunal (FTT) arguing that services were only supplied when the two companies were part of the same VAT group, the group disregard applied and the fees were outside the scope of VAT.
- The FTT concluded that there was no continuous supply of services. The continuous service supply rules could not overrule the fact that Silverfleet had only ever supplied investment management services while it was in the VAT group, and they could not lift the services out of the VAT group and attribute them to services outside the VAT group.
HMRC appealed to the Upper Tribunal, which allowed the appeal, finding that:
- There was a continuous supply of services meaning regulation 90 of the VAT Regulations 1995 applied: the time of supply was the earlier of the time of payment and the time the supplier issued a VAT invoice.
- It followed that the supply took place when the services were invoiced, not when they were provided.
- The time of supply was therefore after Silverfleet had left the VAT group meaning that the VAT group disregard did not apply.
- VAT was chargeable on the services.
Prudential appealed to the Court of Appeal (CoA), which found that:
- Where a member of a VAT group supplies continuous services to another member of the VAT group, but leaves it before receiving full payment, the supply will, to that extent, be deemed to be made when the outstanding amount is invoiced or paid.
- This was the effect of regulation 90: the supply was deemed to be made after Silverfleet had left the VAT group.
- As Silverfleet had left the VAT group at the time of the deemed supply under regulation 90, the VAT group disregard in s.43 VATA 1994 could not apply: the supply was subject to VAT.
While there was not unanimous agreement between the three CoA Justices, Prudential’s appeal was dismissed on a 2-1 majority.
Useful guides on this topic
Groups (VAT)
What are the conditions for forming a VAT group? What rules apply once a VAT group is in place?
Time of supply (Tax Point)
The time of supply of goods or services determines the date on which VAT becomes due. There are a number of different rules which must be considered.
Management re-charges (holding companies)
When are intercompany charges subject to VAT? What rate of VAT applies to an intercompany charge? Is an intercompany charge a supply for VAT? Is there VAT on an intercompany payment for group relief?
External link
The Prudential Assurance Company Limited v HMRC [2024] EWCA Civ 300
