Supplies between companies in the same VAT group are disregarded for VAT purposes by virtue of Section 43(1)(a) of the Value Added Tax Act 1994. The Supreme Court has handed down its judgment in a case concerning whether this disregard applies if the supplying company has left the VAT group by the time payment becomes due.
An investment management company, Silverfleet Capital Limited, had managed funds for insurance company Prudential and was part of its VAT group. In 2007, following a management buy-out of Silverfleet, it stopped managing the funds and left the VAT group. In 2014 and 2015 the value of the funds exceeded an agreed threshold, leading to success fees becoming due. Silverfleet subsequently raised invoices for more than £9.3 million in success fees.
Prudential argued that no VAT was due on the success fees as Silverfleet's services had been supplied when the companies were in the same VAT group, and thus fell to be disregarded. However, HM Revenue and Customs (HMRC) took the view that the services represented a continuous supply of services. Under Regulation 90 of the Value Added Tax Regulations 1995, such services are treated as supplied when they are invoiced or paid for, whichever is earlier. As Silverfleet was no longer a member of the VAT group when that happened, HMRC contended that VAT was due. After Prudential's arguments prevailed before the First-tier Tribunal, HMRC successfully appealed to the Upper Tribunal. Prudential then appealed to the Court of Appeal, which concluded that as Silverfleet had not been a member of the VAT group when the supply had been made under Regulation 90, the disregard contained in Section 43(1)(a) was not in point.
Ruling on Prudential's appeal against that decision, the Supreme Court found that the Court of Appeal had been correct to apply Regulation 90 to determine the time of supply. Regulation 90 clearly applied to the facts of the case. The effect of this was that the time of the supply of Silverfleet's services was modified by the invoicing of the success fees, so that the services were deemed to be supplied at the time of the invoices.
The Supreme Court accepted Prudential's arguments that Article 66 of the EU Principal VAT Directive (PVD) entitled a member state to change the time at which the VAT is collected but not the time of the chargeable event arising from the supply of services. For the disregard in Section 43(1)(a) to be overridden, there therefore had to be a chargeable event after Silverfleet left the VAT group.
In the Court's judgment, applying Article 64(1) of the PVD, there is a chargeable event when there is a successive payment for the supply of services where, at the time that the services were performed, it was not certain that the payment would be made or that it would be for the amount in fact paid. In this case, the chargeable event giving rise to the success fees occurred when the funds reached the agreed benchmark, by which time Silverfleet had left the VAT group. The appeal was dismissed.