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Prudential Assurance Company Limited vs HM Revenue and Customs

James Davies · Posted on: September 11th 2025 · read

A recent decision at the UK Supreme Court has highlighted the importance of determining at the outset of a contractual relationship between members of the same VAT group, which party is liable to pay any VAT due.

Without appropriate protection, exempt or partially exempt recipients of services may be liable to pay VAT, which cannot be recovered if the payment occurs after members cease to form part of the same VAT group.

The Supreme Court (UKSC) has issued its decision in the case of Prudential Assurance Company Ltd (Prudential) vs HMRC. The dispute related to the VAT liability of supplies made to Prudential by Silverfleet Capital Limited (Silverfleet).

The dispute relates to the VAT liability of invoices raised by Silverfleet for services performed whilst it was a member of a VAT group with Prudential. Prudential disagreed with the addition of VAT, hence, became the appellant in the case.

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What is the story behind the case?

Silverfleet and Prudential previously formed part of the same VAT group. Silverfleet provided management services to Prudential, invoiced quarterly. These supplies were disregarded under s.43 VAT Act 1994 and VAT was not charged.

Silverfleet was also entitled to a ‘success fee’ based on the performance of funds it managed. In 2007, Silverfleet was subject to a management buyout and no longer met the conditions to form part of Prudential’s VAT group. It remained entitled to payment of the success fee at a future point, subject to its conditions being met.

These conditions were met at various points during 2014 and 2015. Silverfleet invoiced Prudential for c.£9million plus VAT across 2015 and 2016.

Prudential queried this addition of VAT by non-statutory application to HMRC who decided that VAT was due. Consequently, Prudential appealed, and the case progressed through various stages of the UK VAT tribunal system.

The most recent hearing prior to the present case was heard at the Court of Appeal and went in favour of HMRC by majority verdict, two to one.

Decision

In a detailed decision taking account of both UK VAT law and EU VAT directives, HMRC has successfully argued that Reg.90 of the 1995 VAT Regulations applies to the success fee invoiced when Silverfleet was no longer a member of the VAT group. Reg.90 states provides that services paid for or invoiced periodically are treated as supplied at the time of such payment or invoice.

Three issues were considered:

Issue 1: The UKSC considered if the time of supply rules contained within s.6 of the UK VAT Act 1994 applies to services between VAT group members. It found no provision in UK or EU law which excludes VAT groups from the rules contained in s.6.
Issue 2: The UKSC found that the decision was not on all fours with a previous decision of the Court of Appeal, BJ Rice, and this could ultimately be discounted in the present case
Issue 3: The application of Reg. 90, VAT Regs 1995 was considered. The UKSC confirmed that it’s application to payments made between former VAT group members, and agreed with HMRC that the relevant time of supply for a success fee payment is each time an invoice is raised or payment is made.

The UK was part of the EU during the period to which this dispute relates. Consequently, in considering issue 3, the UKSC considered in detail whether the UK Parliament had implemented Reg.90 consistently with the EU VAT directive. It decided that it had, and that Reg.90 was applicable to the present case.

Interaction with BJ Rice

BJ Rice was a decision of the UK Court of Appeal relating to payments received by a trader after it registered for VAT, but relating to supplies it made and invoiced for prior to registration. As noted earlier in this piece, it was considered by UKSC but discounted because the payments made by Prudential did not follow the same fact pattern.

It now appears that BJ Rice will only be binding on taxpayers displaying a very specific fact pattern as outlined in the case.

Counsel for HMRC confirmed policy remains:

HMRC do not investigate newly VAT registered traders in order to recover VAT from them on services provided or invoiced prior to their registration.

Conclusion

The judgement serves as a salient reminder of the importance of considering the VAT consequences of all payments when agreeing service contracts between VAT group members. Contingent and milestone payments should be of particular focus. VAT group membership changes occur regularly and understanding who will be liable for any VAT due once membership has ceased should be on the radar of all VAT group members.

It is also the perfect time to consider service agreements already in place to determine the effectiveness of these for current group members.