VAT Grouping & Intra-Group charges

A recent UK Supreme Court decision has brought some much-needed clarity to VAT rules around intra-group services. In The Prudential Assurance Company Ltd v HMRC, the Court addressed how VAT should be applied when a supplier leaves a VAT group before issuing an invoice, a scenario that’s more common than you might think.

Background

Prudential Assurance had received investment management services from Silverfleet Capital while both were members of the same VAT group. Under UK VAT law, intra-group supplies are disregarded for VAT purposes. However, years after Silverfleet left the group, it invoiced Prudential for performance-based success fees totalling over £9.3 million and added VAT.

Legal Issue

The central question was whether VAT should be charged on these success fees, given that the services were performed while Silverfleet was still in the VAT group – but the invoice was issued after it had left. Prudential argued that no VAT should apply; HMRC disagreed.

Supreme Court Decision

The Court unanimously dismissed Prudential’s appeal, holding that:

• The time of supply rules under the VAT Regulations apply.

• The success fee constituted a “successive payment”, meaning the chargeable event occurred when the fee was crystallised.  This was after Silverfleet had left the VAT group.

• Therefore, VAT was correctly charged on the success fees.

Implications

This ruling reinforces the importance of timing in VAT liability and confirms that VAT grouping does not override time-of-supply rules. Businesses should carefully consider how contingent or performance-based payments are structured, especially when group membership changes.