The Prudential Assurance Company Ltd v Commissioners for His Majesty’s Revenue and Customs

Time-of-supply rules determine whether a supply falls within the VAT-group disregard under section 43(1)(a) of the Value Added Tax Act 1994. Article 66 of the Principal VAT Directive may postpone when VAT becomes chargeable, but it does not alter the chargeable event.

Article 64(1), however, modifies the chargeable event where the nature of a supply justifies successive payments. This includes contingent consideration whose existence or amount cannot be determined when performance ends. The supply is then regarded as completed at the end of the period to which the contingent payment relates. Accordingly, consideration triggered after the supplier leaves a VAT group is not disregarded merely because the underlying services were performed while the parties belonged to that group.

Silverfleet Capital Ltd provided investment fund management services to Prudential while both companies belonged to the same VAT group. The contractual consideration comprised quarterly management fees and contingent success fees. Silverfleet ceased providing services and left the group in 2007. Success fees were triggered, invoiced and paid in 2015 and 2016.

The First-tier Tribunal allowed Prudential’s appeal: [2021] UKFTT 50 (TC). The Upper Tribunal reversed that decision: [2023] UKUT 54 (TCC). By a majority, the Court of Appeal dismissed Prudential’s further appeal: [2024] EWCA Civ 300.

The central issue was whether regulation 90 of the Value Added Tax Regulations 1995 treated the relevant supplies as occurring after Silverfleet left the group, and whether that result was compatible with articles 63 to 66 of the Principal VAT Directive.

1. Appeal dismissed unanimously. Lady Rose and Lady Simler delivered the judgment, with which the other five Justices agreed. Regulation 90 of the Value Added Tax Regulations 1995 applied to the success fees. The supplies represented by those fees occurred for VAT purposes after Silverfleet had left Prudential’s VAT group: paras [152]–[157].

2. The time-of-supply rules apply when determining whether a supply is made between members of the same VAT group and must therefore be disregarded under section 43(1)(a) of the Value Added Tax Act 1994. Section 43 contains no independent rule based on the time when services were performed in the real world. Its fiscal-neutrality objective does not justify implying such a rule: paras [73]–[79]. This conclusion was supported by Thorn and Svenska.

3. The ratio of B J Rice, so far as it extended beyond a person who was outside VAT registration because turnover fell below the registration threshold, had been undermined by later House of Lords authority. It was confined to its own facts and did not govern this appeal: paras [81]–[83].

4. Article 66 of the Principal VAT Directive permits a member state to postpone the time when VAT becomes chargeable. It does not permit alteration of the chargeable event. Correspondingly, the VAT-group disregard is displaced only if the chargeable event occurs after the supplier leaves the group; later collection alone is insufficient: paras [86]–[87], [99]–[103].

5. Article 64(1) does alter the time of the chargeable event where a supply gives rise to successive payments. Its scope is not confined to services still being performed when payment becomes due. It also covers consideration which remains contingent or uncertain when performance ends, because the nature of that supply justifies a later payment. The supply is regarded as completed at the end of the period to which that payment relates: paras [140]–[149]. The approach was strongly supported by Baumgarten and was not excluded by XB or SPRL.

6. The success fee was a successive payment because neither its existence nor its amount was certain when Silverfleet completed the services. The chargeable event occurred when the contractual hurdle rate was reached. Regulation 90 was therefore compatible with article 64(1), and section 43(1)(a) did not disregard the supplies represented by the 2015 and 2016 invoices: paras [152]–[156].

1. United Kingdom Supreme Court: The appeal was dismissed unanimously: [2025] UKSC 34.
2. Court of Appeal: By a majority, the court dismissed Prudential’s appeal and held that VAT was payable on the success fees: [2024] EWCA Civ 300; [2024] 1 WLR 3457; [2024] STC 682.
3. Upper Tribunal: HMRC’s appeal was allowed, and the tribunal held that VAT was payable: [2023] UKUT 54 (TCC); [2023] STC 629.
4. First-tier Tribunal: Prudential’s appeal was allowed on the basis that no VAT was payable: [2021] UKFTT 50 (TC); [2021] SFTD 717.