On 11 September 2025, this long running appeal finally came to a conclusion when the Supreme Court handed down judgment in The Prudential Assurance Company Ltd v HMRC. The judgment has potentially significant implications for companies that operate within a VAT group and provides much needed clarity on the interplay between the rules governing VAT groups and the time of supply rules.
Background
In summary, the appeal concerned the relationship between section 43 of the Value Added Tax Act 1994 (the VAT Act) and the provisions governing the time at which certain services performed by one company for another are to be treated as “supplied” for VAT purposes (the time of supply rules or TOSR).
Section 43 provides for rules governing VAT groups, allowing companies in the same corporate group to choose to be treated as a single entity for VAT purposes. Section 43 provides that, where a VAT group is in existence, “any supply of goods or services by a member of the group to another member of the group shall be disregarded”.
The question for the Supreme Court was how section 43 applies where, between the time that the services were performed and the time that the VAT invoice for those services is issued or paid, the supplier leaves the VAT group.
Is the position that:
- VAT does not need to be charged, because at the time of supply the supplier was a member of the VAT group or, conversely
- VAT should be charged because the invoice was issued and payment received after the supplier had left the VAT group.
In order to answer this question, the Court had to grapple with the TOSR which are set out in the Principal VAT Directive and implemented in the UK in part by provisions in the VAT Act, and also by regulation 90 of the Value Added Tax Regulations 1995 (the VAT Regulations).
The general rule set out at section 6 of the VAT Act is that the liability to charge VAT arises at the time that the services are performed. There are exceptions to that rule and regulation 90 of the VAT Regulations provides that, where services are supplied over a period, and the whole or part of the payment is made periodically or from time to time, the supply of those services is treated as occurring separately at the earlier of the time (i) when payment is received by the supplier, or (ii) when the supplier issues a VAT invoice relating to the supplies.
Facts of the case
In this case, Silverfleet performed investment fund management services for Prudential when they were both members of the same VAT group. As a result, intra-group supplies were to be disregarded for VAT purposes in accordance with the legislative provisions set out above. Years after Silverfleet had stopped managing the funds for Prudential and left the VAT group, a success fee became due because the value of the funds exceeded a threshold fixed in the services contract between Silverfleet and Prudential. The issue for the Supreme Court to decide was whether, in these circumstances, VAT is payable on the success fee.
The First-Tier Tribunal allowed Prudential’s appeal against HMRC’s assessment and held that that no VAT was payable. However, the Upper Tribunal and the Court of Appeal overturned the decision of the First-Tier Tribunal, deciding that VAT was payable.
On 11 September 2025, the Supreme Court unanimously dismissed Prudential’s appeal, holding that VAT was payable as the time of the supply for VAT purposes was when the success fee invoices were issued, which was at a time when the supplier had left the VAT group.
The Supreme Court held that the TOSR were determinative of when VAT became chargeable. They noted the general rule that a supply is treated as taking place when services are performed. However, as discussed above, regulation 90 of the VAT Regulations means that where services are performed over a period and the payments are made from time to time, the “supply” is treated as occurring either when the VAT invoice is issued, or when payment is received.
Because the invoices for the success fee were only issued and paid after Silverfleet had left the VAT group, the supply for VAT purposes was deemed to take place at that later point in time. As a result, VAT was payable.
Comment
The judgment from the Supreme Court represents the end to this long running litigation and provides helpful clarity on the interplay between the VAT group rules and the TOSR in determining VAT liability.
Now that we have the Supreme Court’s final say on this issue, businesses in VAT groups should carefully consider existing and future contractual agreements which include deferred consideration clauses or other contingent fees. Where there is a possibility of such fees not crystallising for a long period of time, companies that provide or receive such services should be wary of the VAT implications that could arise where one party leaves the VAT group before the payments become due.