UK Supreme Court will hear appeal of recent VAT group decision

In the case, brought by Prudential Assurance Company (‘Prudential’) against HM Revenue and Customs (HMRC), Prudential argued that it did not owe VAT on a performance fee for services provided by a company that had been part of Prudential’s VAT group - a group of related businesses registered as a single taxable entity. According to Prudential, the performance fee which came into effect after the company had left the group should not have triggered VAT because the services had been provided before the company left the group.

HMRC argued that, under ‘time of supply’ rules, the performance fee did trigger VAT after the company had left Prudential’s VAT group, because the services were provided on a continuous basis.

The Court of Appeal decided in HMRC’s favour.

According to tax law expert Bryn Reynolds of Pinsent Masons, the case highlights the need for greater clarity regarding the application of time of supply rules in situations involving VAT groups.

“Certainty for businesses regarding the operation of the time of supply and VAT grouping principles is essential. Both are essentially legal fictions and deeming provisions. The courts have historically struggled with the interaction between the two as can be seen by the number of decisions reversed on appeal and with dissenting opinions,” he said.

The Supreme Court’s confirmation that it will hear the appeal of the Prudential case, and the appeal’s outcome, could impact the way in which continuous supply of services rules are applied in future, he added.

“From a practical perspective, this could have an impact on the time of supply provisions in relation to contingent contracts more generally and the application of the continuous supply of services rules. It also flags that contracts between group members should be clear on the applicable VAT treatment as the parties may not always be in the same VAT group,” he said.