No VAT due: no continuous supply of intra-group services

In The Prudential Assurance Company Limited v HMRC [2021] TC07480 the First Tier Tribunal (FTT) ruled that no VAT was due on intra-group services supplied within a group where invoices were not issued until after the supplier left the group. There was no continuous supply of services.

Prudential was the representative member of a VAT group that included Silverfleet Capital Ltd. Since 2000 Silverfleet had been providing 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. None of its 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 was due on a continuous service where the delivery of that service took place during the period when the entities were part of a VAT group, but payment and invoices were issued after the supplier left the VAT group.
• HMRC argued that Silverfleet’s management services qualified as a Continuous supply of services and therefore VAT had to be charged on the performance fee when it was invoiced and paid. 
• Prudential appealed arguing that services were only supplied when the two companies were part of the same VAT group.

The FTT allowed the appeal on the basis that:

• The services provided by Silverfleet were rendered throughout a period where it was a member of the VAT group. Transactions between companies in the same VAT group are disregarded for VAT purposes.
• The continuous service supply rules should not overrule the fact that Silverfleet had only ever supplied investment management services while it was in the VAT group, they cannot lift the services out of the VAT group and attribute them to services outside the VAT group.

UPDATE: HMRC have been granted permission to appeal to the Upper Tribunal. Upper Tribunal hearing 17 to 18 November 2022.

Useful guides on this topic

Groups
VAT grouping allows two or more 'bodies corporate' to be treated as a single person for VAT.

Time of supply
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 including whether there is a continuous supply of services.

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?

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Prudential Assurance Company Ltd v HMRC [2021] TC07480