UK Supreme Court clarifies VAT Grouping and Time of Supply in Prudential Case
On 11 September 2025, the Supreme Court delivered its judgment in The Prudential Assurance Co. Ltd. v HMRC [2025] UKSC 34, unanimously dismissing Prudential’s appeal. The case turned on the relationship between the VAT grouping provisions in section 43 of the Value Added Tax Act 1994 and the time of supply rules (“TOSR”) in the VAT Regulations 1995. The Court held that it is the time of supply ascertained under the TOSR, not the date of actual performance of services, that determines whether a supply falls within the scope of VAT group relief.
Background to time of supply vs invoicing case
Silverfleet Capital managed a Prudential sub-fund until 2007, when it left the Prudential VAT group following a management buyout. Although its services ceased, it retained entitlement to contingent success fees if funds outperformed. Years later, in 2015–16, Silverfleet invoiced Prudential for £9.33 million in success fees plus VAT. Prudential argued that because the services had been completed during group membership, section 43 required the supplies to be disregarded. HMRC contended that under regulation 90 of the VAT Regulations, the success fees crystallised only on invoicing, when Silverfleet was no longer in the group.
Litigation History
The First-tier Tribunal in 2021 agreed with Prudential, but HMRC succeeded on appeal to the Upper Tribunal in 2023 and again before the Court of Appeal in 2024. The Supreme Court convened a seven-justice panel to hear the final appeal and upheld the Court of Appeal’s reasoning in full.
Supreme Court backs HMRC
The justices confirmed that regulation 90 applies to continuous supplies and that the success fees constituted successive payments. Crucially, the Court held that regulation 90 is not merely an implementation of article 66 of the Principal VAT Directive (PVD) but is consistent with article 64(1). The CJEU’s jurisprudence does not confine article 64 to cases where services are ongoing; it can also apply where part of the contractual consideration is contingent or uncertain at the time services are completed. In such cases, successive payments of contingent elements fall within article 64.
The Court further confined the ratio of B J Rice to its facts, rejecting Prudential’s reliance on it. It also dismissed new EU law arguments advanced by Prudential for the first time in the Supreme Court. The decision makes clear that VAT grouping relief does not extend to contingent payments crystallised after a member has left the group.
Time of supply rules trump actual performancs
The judgment confirms that time-of-supply rules dictate whether intra-group disregard applies, not the timing of actual performance. For practitioners, it underscores that deferred or contingent fees may generate taxable supplies long after services end, and that VAT grouping cannot be relied upon once group membership has ceased.
