VAT group changes with a sting in the tail
The Supreme Court has released its decision in the case of Prudential Assurance Company Ltd. This is an important VAT case considering when a supply takes place for organisations operating a VAT group.
Silverfleet performed investment fund management services for Prudential when both companies were members of the same VAT group. There is no dispute that where the services were performed and paid for while the entities were members of the same VAT group, the supplies were disregarded for VAT purposes. However, Silverfleet was entitled to a success fee contingent on the performance of the funds. This fee became payable after it had left the VAT group.
The issue in dispute was whether the success fee was subject to VAT (when payment was due) or whether it should be disregarded for VAT purposes on the basis the services to which it related were performed while both parties were in the same VAT group.
The decision considered EU legislation, as the events took place prior to the UK’s departure from the EU, as well as domestic legislation and case law. Normally VAT becomes due on a supply of services when those services are completed. However, where services are supplied continuously or give rise to successive and periodic payments (eg investment advice), VAT becomes due on the earlier of issue of VAT invoice or payment.
Central to the case was whether the rules for continuous supplies of services change the time at which a service is supplied for VAT purposes, or whether it merely informs when HMRC is entitled to collect the tax.
The Supreme Court decided that in this case, the rules in regulation 90 of the VAT regulations are aligned with the EU legislation definition of a chargeable event. This meant that while the services were clearly performed while the entities were in a VAT group, a supply arose when the success fee was due and as this was after Silverfleet had left the VAT group, VAT was due. Indeed, regulation 90 can apply where values are contingent or uncertain even when not continuous in nature.
This case shows that the interaction of the VAT grouping provisions with other aspects of VAT law is complex. Careful consideration needs to be given if you are moving companies in and out of a VAT group to ensure unnecessary costs do not arise from future payments of uncertain value.