The Commissioners for HMRC v The Prudential Assurance Company Limited

For continuous services within Regulation 90, the time-of-supply rules must first determine when the supply occurred. Section 43(1) of the Value Added Tax Act 1994 disregards an intra-group supply only if both supplier and recipient were members of the VAT group at that statutory time.

The representative-member assumption in section 43(1) does not apply indefinitely to services performed while group membership existed but treated, under Regulation 90, as supplied after the supplier left the group. The decision in B J Rice & Associates v Customs and Excise Commissioners does not require a different result. It concerned whether time-of-supply rules could make a person wholly outside the VAT system liable at a later date.

Silverfleet Capital Ltd supplied investment-management services to Prudential while both companies belonged to Prudential’s VAT group. The agreements provided for performance fees which became payable only after investment returns exceeded a hurdle rate.

Silverfleet left the VAT group on 8 November 2007 and ceased providing the services. It nevertheless remained entitled to performance fees. It invoiced Prudential for those fees in 2015 and 2016.

The First-tier Tribunal allowed Prudential’s appeal against HMRC’s decision that VAT was due. HMRC appealed. The central issue was whether the fees were disregarded as consideration for an intra-group supply under section 43(1) of the Value Added Tax Act 1994, or were taxable because Regulation 90 treated the continuous services as supplied when invoiced after Silverfleet had left the group.

1. HMRC’s appeal was allowed. The Upper Tribunal set aside the First-tier Tribunal’s decision, re-made it, and dismissed Prudential’s appeal against HMRC’s VAT decision.

2. Regulation 90 governed the statutory time of supply. The services were continuous services for consideration payable from time to time. They were therefore separately and successively supplied when Silverfleet issued its VAT invoices in 2015 and 2016. At those times Silverfleet was no longer a member of Prudential’s VAT group.

3. Section 43(1)(a) applies only where, at the time of the supply as determined under the time-of-supply rules, the supplier and recipient are members of the same group. It contains no qualification of section 6 or Regulation 90. The intra-group disregard accordingly did not apply.

4. The representative-member assumption in the opening words of section 43(1) did not assist Prudential. It applies to supplies taking place while the relevant bodies corporate are group members. It could not cause Silverfleet’s post-exit deemed supplies to be treated as supplies by Prudential, or create two different VAT times of supply for the same services.

5. The First-tier Tribunal erred by treating Silverfleet as indistinguishable from the unregistered taxpayer in B J Rice & Associates v Customs and Excise Commissioners. Silverfleet was not wholly outside VAT; it was subject to the specific assumptions and disregards of section 43. The approach in that case should not be extended to this different statutory setting. The reasoning in Thorn Materials and Svenska strongly supported applying the time-of-supply rules first.

6. Fiscal neutrality, legal certainty, and Article 11 of the Principal VAT Directive did not alter that construction. The performance fees were chargeable to VAT.

• Upper Tribunal (Tax and Chancery Chamber): HMRC’s appeal was allowed. The First-tier Tribunal decision was set aside and re-made; Prudential’s appeal against HMRC’s VAT decision was dismissed.
• First-tier Tribunal: Allowed Prudential’s appeal, holding that the performance fees fell within the VAT-grouping rules. The decision’s citation is not stated in the judgment.