On 11 September 2025, the Supreme Court handed down its judgment in The Prudential Assurance Company Ltd v Commissioners for His Majesty’s Revenue and Customs, a case that delves into the interaction between VAT group rules and the timing of taxable supplies. The decision has significant implications for businesses operating within VAT groups, particularly in relation to deferred consideration and success fees.
Background
Silverfleet Capital Limited (“Silverfleet”) supplied investment fund management services to the appellant (“Prudential”) when both companies were members of the same VAT group, and thus intra-group supplies were disregarded for VAT purposes under section 43 of the VAT Act 1994 (“VATA 94”).
The dispute focused on whether VAT was payable on success fees invoiced by Silverfleet Capital Limited to Prudential Assurance Company Ltd after Silverfleet had left Prudential’s VAT group. The success fees were only triggered and invoiced some years after Silverfleet had exited the VAT group.
HMRC determined that VAT was chargeable on the success fees. Although the First-tier Tribunal found in Prudential’s favour (that no VAT was payable), this was overturned by the Upper Tribunal who considered that VAT was payable, which was in turn upheld by the Court of Appeal.
In the Supreme Court, Prudential argued that the success fees should be disregarded for VAT purposes because they related to services provided during the period of VAT group membership. HMRC contended that the “time of supply” rules, which determine when a supply is deemed to occur for VAT purposes, meant that the success fees were taxable because they were invoiced and paid after Silverfleet had left the group.
The Supreme Court unanimously dismissed Prudential’s appeal; VAT was payable as the time of the supply was when the success fee invoices were issued (which was after the supplier left the VAT group).
Supreme Court’s Decision
The Court held that:
- The time of supply rules under both domestic and European legislation were determinative of when VAT became chargeable. The general rule under section 6 VATA 94 is that supply is treated as taking place when services are performed. However, there is an exception under regulation 90 of the 1995 VAT Regulations where services are provided over a period and the payments are made from time to time. When this happens, the “supply” is treated as occurring either when the VAT invoice is issued, or when payment is received.
- Since the success fees were only invoiced and paid after Silverfleet had left the VAT group, the supply was deemed to occur at that later time. Therefore, the intra-group disregard under section 43 VATA 94 did not apply, and VAT was properly chargeable on the success fees.
- The Court acknowledged the complexity of the legislative framework and the competing interpretations but ultimately sided with HMRC’s view that the timing of the invoice and payment was decisive.
Implications
This judgment provides clarity on the scope of VAT group relief and reinforces the importance of the time of supply rules in determining VAT liability.
Businesses operating within VAT groups should be mindful that:
- Deferred consideration or performance-based fees may attract VAT if invoiced after group membership ends; and
- The timing of invoicing and payment can override the historical context of service provision for VAT purposes.
The decision also underscores the need for careful drafting of service agreements and VAT planning in group structures, particularly where long-term or contingent fees are involved.
About the authors
Waqar is a Partner in the Dispute Resolution department, focusing on the resolution of complex tax matters. He acts for high net worth individuals and corporate clients across all sectors in respect of HMRC disputes and investigations across the full range of taxes. This typically includes VAT disputes, employment tax matters (including 'IR35'/off-payroll working), customs/excise duty issues, tax fraud investigations, and more recently, National Minimum Wage enquiries.
Anna has extensive litigation experience, acting for both domestic and international clients on complex, multi-jurisdictional, trust and estate disputes.
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