Factual and Procedural Background
This appeal addresses how the statutory disregard for intra-group supplies in section 43 of the Value Added Tax Act 1994 (VAT grouping) interacts with domestic and EU “time of supply” provisions when consideration is invoiced and paid after a supplier leaves a VAT group.
Company A provided investment fund management services to the Appellant (both being members of the same VAT group during the service period) under two consecutive agreements covering 1 January 2002 to 31 December 2003 and 1 January 2004 to 8 November 2007. Consideration comprised (i) quarterly management fees (accruing during the period of service) and (ii) success fees contingent on performance exceeding a benchmark for certain sub-funds. Company A ceased both managing the fund and being in the VAT group on 8 November 2007.
In 2014–2015, contractual performance thresholds were reached, triggering success fees. Company A invoiced the Appellant between 16 January 2015 and 11 July 2016 for success fees totalling £9,330,805.92 and charged 20% VAT.
The Appellant queried the VAT. Following review, the Respondent maintained that VAT was correctly chargeable on the success fees. The First-tier Tribunal allowed the Appellant’s appeal (no VAT payable). The Upper Tribunal allowed the Respondent’s appeal (VAT payable). The Court of Appeal (majority) dismissed the Appellant’s appeal, holding the success fees were subject to VAT. The present court dismissed the Appellant’s further appeal.
Legal Issues Presented
- Whether the “time of supply” rules (including regulation 90 of the 1995 VAT Regulations) must be applied to identify if and when a supply occurred within the meaning of section 43(1)(a) so as to determine whether the intra-group disregard applies.
- Whether the decision in [1996] STC 581 is authority for the proposition that a supply non-taxable when actually performed cannot be rendered taxable by later changes in the supplier’s VAT status; and, if so, how it bears on these facts.
- If the time of supply rules apply, how regulation 90 operates on the facts and whether it is compliant with the EU provisions (Principle VAT Directive articles 63–66) as interpreted by the CJEU, including whether regulation 90 permissibly affects the timing of the chargeable event.
Arguments of the Parties
Appellant's Arguments
- Section 43(1)(a) renders intra-group supplies “disregarded” for VAT; because the services were actually performed while both entities were in the group, there is no “supply” to which time of supply rules can attach. Regulation 90 has no role where the real-world supply took place during group membership.
- Reliance on [1996] STC 581: the time of supply rules determine “when, not whether” tax is charged; a non-taxable supply when performed cannot later become taxable due to status changes.
- Regulation 90, read consistently with EU law, can affect only when VAT becomes chargeable (collection), not the time of the chargeable event. Articles 63–66 of the PVD maintain a distinction: article 66 allows postponing collection but not altering the chargeable event. If regulation 90 suggests otherwise, it must be conformingly interpreted (per [2006] EWCA Civ 29) to align with EU law.
Respondent's Arguments
- Section 43 does not contain its own time-of-supply rule. The time of supply rules, including regulation 90, must be applied to determine whether a supply fell within the period of group membership and thus whether the section 43 disregard applies.
- The success fee forms part of the consideration for services “for a period” and is “determined … from time to time.” Regulation 90(1) treats such services as separately and successively supplied at each invoice/payment, here occurring after Company A left the group; VAT is therefore chargeable.
- Regulation 90 permissibly implements both article 64(1) (modifying the timing of the chargeable event for successive payments) and article 66 (postponing chargeability), consistent with CJEU jurisprudence. If conforming interpretation were needed to repair any incompatibility, that would entail impermissibly extensive judicial redrafting.
- [1996] STC 581 is inconsistent with later higher authority and, at most, should be confined to its facts.
Table of Precedents Cited
| Precedent |
Rule or Principle Cited For |
Application by the Court |
| [1998] 1 WLR 1106 (House of Lords) |
Time-of-supply rules must be applied to determine whether/when intra-group supplies occur; prepayment timing vs delivery; majority taxed full price when delivery occurred after group membership ended. |
Supported applying time-of-supply rules to section 43. Distinguished on facts (goods and prepayment) but consistent with requiring time-of-supply analysis to test the section 43 disregard. |
| [1999] 1 WLR 769 (House of Lords) |
For continuous supplies under the then-regulation 23 (now regulation 90), no supply is treated as made until invoice/payment; grouping can attribute exempt outputs and affect input deductibility. |
Rejected reliance on “real-world” performance; endorsed using regulation 90 to fix supply timing. Not inconsistent with the earlier House of Lords case, but factually different. |
| [2003] UKHL 29; [2003] 1 WLR 1387 |
Regulation 90 treats services as “separately and successively supplied”; successive supplies are treated as different in time. |
Applied to explain how regulation 90 splits ongoing or periodic supplies into separate VAT supplies. |
| [1996] STC 581 |
Majority view that time-of-supply rules determine when, but not whether, tax is charged; no VAT where services were pre-registration and invoiced pre-registration. |
Confined to its facts and regarded as undermined by subsequent higher authority; not determinative here. |
| [2019] EWCA Civ 485; [2020] 1 All ER 1045; [2019] STC 1134 |
Section 43 validly implements EU article 11 (VAT grouping). |
Cited to note no challenge to the validity of domestic grouping rules. |
| Case C-85/11, EU:C:2013:217 |
Aims of VAT grouping (simplification, combating abuse, neutrality). |
Used to frame the purpose of article 11 and domestic grouping provisions. |
| Case C-184/23, EU:C:2024:599; [2024] STC 1391 |
Further articulation of VAT grouping’s objective of organisational neutrality. |
Reinforced the neutrality rationale; did not displace the need to apply time-of-supply rules. |
| Case C-548/17, EU:C:2018:970 |
Article 63 read with article 64(1): for services remunerated by conditional instalments over years, the chargeable event and chargeability occur upon expiry of the periods to which payments relate; no pre-financing required. |
Key analogy supporting that contingent success payments can be “successive payments” under article 64(1), postponing the chargeable event beyond performance. |
| Case C-324/20, EU:C:2021:880 |
Article 64(1) applies only to supplies whose nature justifies instalments (repeated/continuous); not to one-off supplies paid by instalments; parties cannot freely select timing of VAT. |
Considered and distinguished; did not preclude applying article 64(1) where consideration is contingent/uncertain at performance. |
| Case C-144/94, EU:C:1995:355; [1995] STC 1059 |
Article 66 (derogation) concerns when VAT becomes chargeable (collection), not when the chargeable event occurs; Member States cannot use article 66 to alter the chargeable event. |
Used to reject the contention that article 66 allows shifting the chargeable event; article 66 alone cannot displace the section 43 disregard. |
| Case C-118/11, EU:C:2012:97 |
Example of article 64 applying to services of continuous nature (leasing). |
Cited (via later CJEU analysis) as an illustration of the “nature justifying instalments” category. |
| Case C-463/14, EU:C:2015:542 |
Example of consulting services falling within article 64. |
Illustrative of the continuous/recurrent services to which article 64 applies. |
| Case C-516/14, EU:C:2016:690 |
Further example of services within article 64’s scope. |
Illustrative authority relied on in CJEU analysis. |
| Case C-224/18, EU:C:2019:347 |
Maximum harmonisation of VAT chargeability timing; parties cannot govern timing by contract. |
Reinforced constraints on contractual manipulation of VAT timing. |
| Case C-696/22, EU:C:2024:499 |
Article 64 modifies the time of the chargeable event for continuous supplies; chargeability not conditional on actual receipt where article 66 not adopted. |
Supported that article 64 can alter the timing of the chargeable event and that chargeability does not depend on actual payment receipt. |
| [2006] EWCA Civ 29; [2006] STC 1252 |
EU-consistent interpretation: domestic provisions must be read compatibly with EU law unless doing so would depart from a fundamental feature of the legislation. |
Invoked by the Appellant; the Court found regulation 90 compatible with EU law, so no strained interpretation was required. |
Court's Reasoning and Analysis
Issue 1: The Court held that section 43(1)(a) (the VAT group disregard) does not contain its own timing rule. The time-of-supply framework in section 6 VATA 1994 and regulation 90 of the 1995 VAT Regulations applies across the VAT regime, including to determine whether and when a supply is made within the meaning of section 43. This accords with the House of Lords jurisprudence, which explains that one must first identify a supply and its timing by applying the time-of-supply rules; only then can the section 43 disregard be tested. The Court rejected the submission that “supply” in section 43 means only the “real-world” performance of services irrespective of the time-of-supply regime. Concerns about potential manipulation by delaying invoicing were not persuasive in this context, and the Court did not accept that VAT grouping implied a bespoke time-of-supply rule.
Issue 2: The Court confined [1996] STC 581 to its facts. Later House of Lords decisions demonstrate that time-of-supply rules do more than address mere accounting mechanics; they are integral to deciding whether a supply is taxable. To the extent the earlier case suggests otherwise, it cannot control the present outcome.
Issue 3: The Court undertook a two-stage analysis: (A) what regulation 90 does as a matter of domestic law, and (B) whether, so understood, it is compatible with the PVD.
- A. Domestic construction. Regulation 90(1) applies by its terms to services supplied “for a period” for consideration that is “determined or payable periodically, or from time to time.” It substantively treats such services as “separately and successively supplied” at each invoice or payment. On its face, therefore, regulation 90 captures the success fees: they are part of the contractual consideration determined “from time to time,” so the associated “supplies” are treated as occurring when invoiced/paid—here, after Company A left the VAT group.
- B. EU compatibility. The Court emphasised the distinction in the PVD between (i) the chargeable event (articles 62–64) and (ii) when VAT becomes chargeable/collectible (article 66). Article 66 allows Member States to postpone chargeability (collection) but does not permit altering the chargeable event itself. Accordingly, article 66 cannot, by itself, displace the section 43 disregard; the disregard is overridden only if the chargeable event occurs after group membership ends.
The Court then considered article 64(1), which expressly modifies the moment at which the chargeable event occurs for “supplies which give rise to successive statements of account or successive payments”: the supply is “regarded as being completed” upon expiry of the period(s) to which such payments relate. The Court accepted that CJEU jurisprudence construes article 64(1) restrictively so that it cannot be manipulated merely by splitting an agreed price into instalments for a one-off service. However, the Court held that article 64(1) does apply where the nature of the supply or its contractual remuneration justifies successive payments—such as where part of the consideration is uncertain or contingent and crystallises later. The decision in Case C-548/17 (agency services remunerated by conditional instalments over several years) supported this reading: the chargeable event and chargeability were linked to the expiry of the periods to which later conditional payments related, not solely to the earlier act of performance.
The Court distinguished the one-off service scenario addressed in Case C-324/20, which rejected article 64(1) where an unconditional fixed price for a single service was merely paid by time-framed instalments. Here, by contrast, the success fees were contingent and variable; they became payable only if and when defined hurdles were met. That is a type of supply “giving rise to successive payments” within article 64(1). The Court also noted that Case C-696/22 confirmed that article 64(1) can modify the timing of the chargeable event in continuous/periodic contexts and that chargeability is not conditional upon actual receipt of payment (particularly where article 66 has not been adopted).
Applying these principles, the Court concluded that regulation 90 permissibly implements article 64(1) (and article 66 for collection timing). Thus, the chargeable event attributable to the success fees occurred when the conditions for those fees were satisfied and they were invoiced/paid—well after Company A left the VAT group. By contrast, the quarterly management fees (accruing during the management period within the group) had their chargeable events while the parties were grouped and were disregarded (and no retrospective VAT was sought on those).
Accordingly, regulation 90 identifies the timing of the supplies to which the success fees relate as post-group, the section 43 disregard does not apply to those supplies, and VAT is due. This conclusion coheres with the House of Lords authorities and the CJEU case law, properly read in context.
Holding and Implications
DISMISSED. The Court held that the time-of-supply regime, including regulation 90, applies when determining whether the VAT group disregard in section 43(1)(a) excludes VAT on success fees. On a proper construction, regulation 90 (compatibly with article 64(1) of the PVD) treats the relevant services as separately and successively supplied at the time of the success-fee invoices/payments. Because those events occurred after Company A left the VAT group, the section 43 disregard does not apply to the success fees and VAT is payable.
Implications: The direct consequence is that the success fees are subject to VAT because the chargeable event occurred post-group. The decision clarifies how regulation 90 and article 64(1) interact with VAT grouping where consideration for earlier-performed services is contingent or determined from time to time and crystallises after group membership ends. No broader policy changes or new statutory rules were created beyond this clarification.