United Kingdom: In UK, the tax point deeming provisions take priority over VAT grouping deeming provisions.

Prudential Assurance Company Limited (Prudential) received investment management services from Silverfleet Capital Ltd (SCL), whilst both companies were a member of the same VAT group. SCL subsequently left the VAT group and ceased providing these services. However, for some services which SCL rendered to Prudential while it was still part of the VAT group, SCL had issued an invoice or received payment for services after it had left the group.

Applying the continuous supply of services tax point rules, HMRC considered that the tax point was created when the invoice was issued which was after SCL left the VAT group and therefore, the supply was liable to VAT. Prudential disagreed and considered that the transaction should be disregarded and treated as outside the scope of VAT since both parties were members of the same VAT group when the supplies were actually made.

The First-tier Tribunal (FTT) had ruled in favour of Prudential, but the UT reviewed and determined that the time of supply deeming provision had to take priority over the VAT grouping deeming provisions in this context. Accordingly, a continuous supply of services took place when the parties were no longer members of the same VAT group. The supply could therefore not be disregarded under the VAT grouping provisions and was within the scope of VAT.

Key takeaway

The practical impact of this decision is likely to be seen most in situations of a partly exempt VAT group; and particularly where the amount of fee to be billed / paid intra group is not instantaneously available when a member exits. There are other situations (outside VAT grouping) where special time of supply rules can give a different liability result compared to the basic time of supply rules and each situation needs to be looked at on its terms.