Prudential Assurance v HMRC: VAT liability on success fees after group exit

The Supreme Court's judgement in The Prudential Assurance Company Ltd v Commissioners for His Majesty's Revenue and Customs, delivered on 11 September 2025, provides crucial clarification on VAT liability within corporate group structures, particularly regarding the timing of supply and invoicing obligations.

Case Background

The dispute centred on success fees charged by Silverfleet Capital Limited to Prudential for investment management services. The complexity arose because whilst the underlying services were provided during Silverfleet's membership of Prudential's VAT group, the success fees were invoiced only after Silverfleet had exited the group structure.

Under section 43 of the Value Added Tax Act 1994, intra-group supplies are generally disregarded for VAT purposes, ensuring tax neutrality within corporate structures. This principle mirrors treatment that would occur within a single corporate entity, protecting group arrangements from undue tax burdens on internal transactions.

Legal Arguments

Prudential's position was straightforward: since all management services giving rise to the success fees were delivered whilst both companies remained within the same VAT group, no VAT liability should arise regardless of subsequent billing arrangements. The company argued that the substance of the transaction occurred during group membership, when VAT neutrality provisions applied.

HMRC countered that VAT liability crystallised upon invoicing, which occurred after the companies' separation. The Revenue's argument focused on the timing provisions within VAT legislation and the principle that tax events are triggered by specific procedural milestones rather than purely substantive service delivery.

Supreme Court Analysis

The Court examined the intricate relationship between service supply timing and payment obligations under both domestic and EU VAT frameworks. Central to the analysis were the time of supply rules (TOSR), which determine precisely when VAT liability arises in complex commercial arrangements.

The judgement referenced established CJEU precedents, including B J Rice and Thorn, which established that VAT timing cannot be manipulated through contractual arrangements designed to delay invoicing or payment. These authorities emphasised that whilst parties enjoy considerable contractual freedom, this cannot extend to circumventing legitimate tax obligations through artificial timing arrangements.

The Court distinguished between the performance of underlying services and the crystallisation of payment obligations, noting that success fees represent contingent liabilities tied to specific performance metrics rather than straightforward service remuneration.

The Decision

The Supreme Court concluded that VAT was indeed chargeable on the success fees. The critical finding was that since invoicing occurred post-group exit, Silverfleet operated as a distinct entity when the tax liability crystallised. At this point, the protective VAT grouping provisions no longer applied, and standard VAT treatment resumed.

The judgement reinforced that VAT grouping, whilst providing significant operational flexibility for corporate structures, does not create perpetual immunity from tax obligations. When financial arrangements span periods of group membership and independence, the timing of invoicing becomes determinative of tax liability.

Implications

This decision establishes important boundaries for VAT treatment in corporate group arrangements. The judgement clarifies that the temporal alignment between service provision and invoicing can be crucial in determining tax liability, particularly where contingent fees are involved.

The ruling affects all entities operating within VAT group structures, emphasising the importance of careful timing coordination when companies enter or exit such arrangements. The decision reinforces existing principles whilst providing practical guidance on managing VAT obligations during corporate restructuring activities.