VAT is not applicable on a continuous supply of services where these services were rendered entirely while the entities were VAT grouped but invoices were issued/payment was made after the supplier left the VAT group
In the case of The Prudential Assurance Company Ltd (PAC), the First-Tier Tribunal has considered whether VAT was chargeable on the provision of certain investment management services provided between VAT group members.
PAC is a regulated life assurance company. Silverfleet Capital Ltd (SCL) provided investment management services to PAC and was entitled to management fees and performance fees. At the time at which SCL rendered its investment management services, PAC and SCL were members of the same VAT group. SCL then left the VAT group, after which it stopped providing investment management services to PAC but continued to be entitled to performance fees. It invoiced PAC at various dates for performance fees plus VAT.
PAC made a claim to recover the VAT, as it considered that the performance fees were consideration for the services that SCL rendered to PAC whilst the two companies were members of the same VAT group. In contrast, HMRC argued that SCL’s supply of services was continuous, with the time of supply being when an invoice is issued or when consideration is received by the supplier.
However, the Tribunal held that the services provided by SCL were rendered throughout a period during which it was a member of the PAC VAT group, and that the performance fees should therefore be disregarded for VAT purposes.
Businesses moving in and out of VAT groups may wish to consider the implications of the case in similar situations, for example, royalty payments made after leaving a VAT group. Consideration should also be given to the implications in the opposite scenario i.e. services paid for whilst a company is a member of a VAT group but consumed afterwards (e.g. a royalty paid in advance) where VAT could be due instead of being treated as an intra VAT group supply.
