How VAT Groupings and Tax Points Affect Liability
How VAT Groupings and Tax Points Affect Liability
The Supreme Court has recently issued a judgment examining the interaction between VAT grouping rules and the tax point, or time of supply, rules. The decision highlights how timing and group membership can affect liability for VAT.
Overview of the case
Silverfleet Capital Limited (“SCL”) was formerly part of the Prudential VAT group. While a member, it provided services to one of Prudential’s investment funds. Under its agreement, SCL became entitled to a performance-related fee. However, the conditions triggering the payment were only satisfied after SCL had completed a management buy-out and left the VAT group.
The legal question was whether the tax point occurred when the services were delivered - which would have meant the payment fell outside the scope of VAT because intra-group supplies are disregarded, or when the payment was received. HMRC argued that SCL had made a continuous supply of services, so the tax point arose on each payment date.
The outcome for Silverfleet Capital Limited
The Supreme Court agreed with HMRC. It ruled that although VAT grouping rules aim to maintain fiscal neutrality within groups, they must be read alongside the tax point rules. The Court held that the tax point was the date of payment. Because SCL was no longer part of the VAT group when the performance fee was paid, the payment was subject to VAT.
How The VAT People can help
This case demonstrates the complexity of applying VAT grouping rules and time of supply provisions in practice. Corporate groups may face unexpected liabilities if the timing of payments, restructuring or group membership is not carefully reviewed.
The VAT People has extensive experience advising businesses on VAT grouping and tax point issues. We assess corporate structures, identify risks and provide practical guidance to help organisations remain compliant while managing their VAT position.
If you would like to discuss how these rules may affect your business, contact The VAT People on 0161 477 6600.