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Settle Smart series part two: Tax liabilities in relation to settlement monies
Krishna Mahajan
Silverfleet Capital Limited (“Silverfleet”) supplied investment fund management services to the appellant (“Prudential”) when both companies were members of the same VAT group, and thus intra-group supplies were disregarded for VAT purposes under section 43 of the VAT Act 1994 (“VATA 94”).
The dispute focused on whether VAT was payable on success fees invoiced by Silverfleet Capital Limited to Prudential Assurance Company Ltd after Silverfleet had left Prudential’s VAT group. The success fees were only triggered and invoiced some years after Silverfleet had exited the VAT group.
HMRC determined that VAT was chargeable on the success fees. Although the First-tier Tribunal found in Prudential’s favour (that no VAT was payable), this was overturned by the Upper Tribunal who considered that VAT was payable, which was in turn upheld by the Court of Appeal.
In the Supreme Court, Prudential argued that the success fees should be disregarded for VAT purposes because they related to services provided during the period of VAT group membership. HMRC contended that the “time of supply” rules, which determine when a supply is deemed to occur for VAT purposes, meant that the success fees were taxable because they were invoiced and paid after Silverfleet had left the group.
The Supreme Court unanimously dismissed Prudential’s appeal; VAT was payable as the time of the supply was when the success fee invoices were issued (which was after the supplier left the VAT group).
The Court held that:
This judgment provides clarity on the scope of VAT group relief and reinforces the importance of the time of supply rules in determining VAT liability.
Businesses operating within VAT groups should be mindful that:
The decision also underscores the need for careful drafting of service agreements and VAT planning in group structures, particularly where long-term or contingent fees are involved.
Waqar is a Partner in the Dispute Resolution department, focusing on the resolution of complex tax matters. He acts for high net worth individuals and corporate clients across all sectors in respect of HMRC disputes and investigations across the full range of taxes. This typically includes VAT disputes, employment tax matters (including 'IR35'/off-payroll working), customs/excise duty issues, tax fraud investigations, and more recently, National Minimum Wage enquiries.
Anna has extensive litigation experience, acting for both domestic and international clients on complex, multi-jurisdictional, trust and estate disputes.
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Krishna Mahajan
Krishna Mahajan
Waqar Shah
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