The Prudential Assurance Company Limited v The Commissioners for HMRC

For VAT purposes, the statutory time-of-supply rules can determine not only when a continuous supply is treated as made, but also the nature and VAT recognition of that supply. In a VAT group, the intra-group disregard applies only if, on the statutory deemed date, supplier and recipient are members of the same group. A supplier leaving the group before invoicing or payment may therefore make a taxable supply for the outstanding consideration. The broad rule in B J Rice, that time-of-supply rules determine when but not whether VAT is chargeable, is no longer binding in this context in light of Svenska and RSA. A narrower principle concerning a supplier wholly outside the VAT regime does not extend to a VAT-group member.

Prudential received investment management services from Silverfleet while both companies belonged to the same VAT group. Silverfleet left the group before performance fees were invoiced and paid. The fees were invoiced with VAT.

The First-tier Tribunal decided in Prudential’s favour. The Upper Tribunal allowed HMRC’s appeal and held that VAT was chargeable: [2023] UKUT 00054 (TCC). The Court of Appeal considered whether the intra-group disregard and the assumption that group business was carried on by the representative member applied by reference to the real-world supply or to the time fixed by the continuous-supply rules. It also considered whether B J Rice remained binding.

By a majority, Newey LJ and Underhill LJ dismissed the appeal. Nugee LJ dissented and would have allowed it.

1. The broad ratio of B J Rice & Associates v Customs and Excise Commissioners [1996] STC 581 was that the existence of a chargeable transaction was determined when the supply was actually made, while time-of-supply rules determined only when tax was charged. The majority held that this broad ratio could no longer bind the Court in light of Svenska International plc v Customs and Excise Commissioners [1999] 1 WLR 769 and Royal & Sun Alliance Insurance Group plc v Customs and Excise Commissioners [2003] UKHL 29.
2. Section 6 of the Value Added Tax Act 1994 and regulation 90 of the Value Added Tax Regulations 1995 determine when a continuous supply is treated as made. Their effect is not confined to bookkeeping. They may affect the nature and VAT recognition of successive supplies.
3. The disregard in section 43(1)(a) of the Value Added Tax Act 1994 has a temporal operation. It applies where the supply, applying the statutory time-of-supply rules, is treated as made while the supplier and recipient are members of the same VAT group. Here, the outstanding services were treated as supplied when invoiced or paid, after Silverfleet had left the group.
4. The assumption that group business is carried on by the representative member likewise applies only while the relevant group relationship exists. It did not prevent VAT arising on the post-departure deemed supplies. Silverfleet remained within the VAT regime, unlike the supplier in B J Rice who was outside it when the services were supplied.
5. Nugee LJ considered that B J Rice remained binding. In his view, Svenska and RSA concerned different questions and could stand with the narrower rule that a transaction not chargeable when actually supplied could not become chargeable merely through later time-of-supply rules.

• Court of Appeal (Civil Division) dismissed Prudential’s appeal by a majority: [2024] EWCA Civ 300.
• Upper Tribunal (Tax and Chancery Chamber) allowed HMRC’s appeal and held that VAT was chargeable on the performance fees: [2023] UKUT 00054 (TCC).
• First-tier Tribunal decided the VAT issue in Prudential’s favour on 26 February 2021.