The Prudential Assurance Company Ltd v Commissioners for His Majesty’s Revenue and Customs [2025] UKSC 34

Prudential and Silverfleet were in the same VAT group when Silverfleet provided fund management services. Success fees became payable years after Silverfleet left the group. The Supreme Court held VAT was payable on the success fees because, under regulation 90, the chargeable event occurred when fees were invoiced after Silverfleet had departed the VAT group.

Facts

Silverfleet Capital Limited provided investment fund management services to Prudential Assurance Company Ltd under agreements effective between 2002 and 2007. During this period, both companies were members of the same VAT group, with Prudential as the representative member. The consideration for Silverfleet’s services comprised quarterly management fees and contingent success fees payable if fund performance exceeded set benchmarks. In November 2007, Silverfleet underwent a management buy-out, ceased providing services, and left the VAT group. Between 2014 and 2016, the contractual hurdle rates were met, triggering success fees totalling approximately £9.3 million. Silverfleet invoiced Prudential with VAT added at 20%. Prudential challenged the VAT liability, arguing that since all services were performed whilst both parties were in the same VAT group, the VAT Group Disregard under section 43(1)(a) of the Value Added Tax Act 1994 applied.

Issues

Principal Legal Questions

1. Whether the Time of Supply Rules (TOSR) in regulation 90 of the VAT Regulations 1995 apply to determine when a supply occurs for the purposes of the VAT Group Disregard in section 43(1)(a) VATA 1994.

2. Whether B J Rice & Associates v Customs and Excise Commissioners established a principle that supplies non-taxable when actually performed cannot later become taxable.

3. Whether regulation 90, as applied to these facts, is compatible with articles 63 to 66 of the Principal VAT Directive (PVD), particularly regarding the distinction between the chargeable event and chargeability of VAT.

Judgment

Application of Time of Supply Rules

The Supreme Court unanimously held that the TOSR must be applied to determine the timing of supplies for the purposes of the VAT Group Disregard. Lady Rose and Lady Simler, delivering the joint leading judgment, stated:

“Section 43 is not a complete code and nor is article 11 of the PVD. Neither contains a rule for determining the time of supplies… There is no basis in the ‘single taxable person’ concept or the objectives of article 11 of the PVD for inferring a rule that depends on when the services were actually performed.”

Treatment of B J Rice

The Court held that the ratio of B J Rice must be confined to its particular facts concerning unregistered traders, and that its broader reasoning was inconsistent with subsequent House of Lords decisions in Thorn, Svenska, and RSA.

Compatibility with EU Law

The Court accepted that article 66 of the PVD only permits Member States to change when VAT is collected, not when the chargeable event occurs. However, article 64(1) permits modification of the chargeable event timing where supplies give rise to successive payments. The Court held that baumgarten (Case C-548/17) provided strong support for treating contingent success fees as successive payments within article 64(1):

“Article 64(1) also applies where the reason why the supply of services ‘gives rise’ to a successive payment is because the value of the services is determined under the contract in whole or in part at a later date, after the performance of the services.”

The Court distinguished the CJEU’s restrictive interpretation in XB (Case C-324/20), noting that case concerned artificial payment deferrals rather than genuinely contingent consideration.

Implications

This decision clarifies that the VAT Group Disregard does not permanently shield intra-group supplies from VAT where contingent consideration becomes payable after the supplier leaves the group. The judgment confirms that regulation 90 validly implements article 64 of the PVD by treating contingent fees as creating separate chargeable events when they crystallise. The decision has significant implications for corporate restructurings involving deferred or performance-based consideration, establishing that VAT grouping benefits cannot be preserved indefinitely for uncertain future payments arising from services performed whilst in the group.

Verdict: Appeal dismissed. The Supreme Court upheld the decisions of the Upper Tribunal and Court of Appeal, confirming that VAT was properly chargeable on the success fees invoiced by Silverfleet after it had left the VAT group.

Source: The Prudential Assurance Company Ltd v Commissioners for His Majesty's Revenue and Customs