Weekly VAT News

Prudential Assurance Company Ltd: VAT groups and continuous supplies – Supreme Court

In November 2007, Silverfleet Capital Ltd completed a management buy-out and left the Prudential VAT group. Since 2002 it had been providing fund management services to one of Prudential’s with-profits funds, and was entitled to a performance-related fee in the event that the fund exceeded certain benchmarks. Those benchmarks were eventually met in 2014 and 2015, triggering performance payments of £9.3m. Given that Silverfleet carried out its fund management services before it left the VAT group, but received payment several years afterwards, should it charge VAT? Silverfleet’s management qualified as a continuous supply of services, and HMRC therefore considered that VAT had to be charged by reference to when the performance fee was invoiced and paid. The Supreme Court has found in favour of HMRC that VAT should be chargeable. The SC found that the purpose of the VAT grouping provisions is to promote organisational fiscal neutrality between corporate groups, but that it must be read alongside the time of supply rules. In this case, Regulation 90 of the 1995 VAT Regulations provides that continuous supplies of services are treated as separately and successively supplied at the earlier of each time payment is made or a VAT invoice is issued, and the UK law does not go further than is permitted by the relevant provisions of the EU Principal VAT Directive. This meant that there was a chargeable event when the invoice for the success fee was issued or paid, and that was when Prudential and Silverfleet were no longer in the same VAT group. There is no basis for inferring a separate rule for VAT groups that depends on when the services were actually performed. (Contact: Andrew Clarke)

Hotelbeds UK Limited: Evidence for input tax recovery – judicial review

Hotelbeds UK Limited is in the business of making wholesale, business-to-business, supplies of hotel rooms to, among others, tour operators. Until 1 March 2023, it had accounted for VAT in the standard way: it would charge VAT on the onward taxable supplies of hotel rooms and where a valid VAT invoice was held, claim an input tax deduction for the VAT charged by UK VAT-registered hotels. However, Hotelbeds experienced difficulty in obtaining VAT invoices from the hotels, in part due to the industry norm that payment for the hotel rooms was made by means of a virtual credit card when the hotel guest checks in/out of the hotel, and not following the issue of a VAT invoice. Hotelbeds maintained records of relevant supplies and suppliers, and followed a process to follow up on missing valid VAT invoices. Consequently, Hotelbeds tried to rely on HMRC’s stated discretion to accept alternative evidence as expressed in Regulation 29 of the VAT Regulations 1995, and relevant policy statements, when making its claims to recover the input tax. HMRC paid the first two of four Error Correction Notices (ECNs) claims, but then changed their position in respect of ECNs three and four, holding that the claimant had “systematically failed” to obtain an invoice. In finding in favour of Hotelbeds, the High Court has held that given the absence of directly applicable, specifically drafted, HMRC policy (in the event there are no invoices), HMRC are “…required to go back to the scope of the discretion which the taxpayer seeks to invoke, and to judge the request made against the principles of the tax in light of HMRC’s duty to protect the revenue.” The purpose of the discretion is to recognise that the neutrality of the tax is important: there was no serious suggestion of fraud, or a risk that input tax deduction might be obtained by others, and materials of a type existed sufficient to satisfy HMRC that two earlier claims could lawfully be paid. The application for judicial review was allowed (Contact: Charlie McMillian)

HMRC Notice 700/45: How to correct VAT errors and make adjustments or claims

Following on from the publication on 1 September 2025 of HMRC’s Guidelines for Compliance 13: Help ensuring documents filed with HMRC are correct and complete, HMRC have updated Notice 700/45: How to correct VAT errors and make adjustments or claims. The Notice’s update section explains that updates have been made to: section 4 with information on how and when to correct VAT errors, and what happens if you do not; section 6 with information about claiming input tax; section 7 with more information about how underpayments and overpayments are paid and HMRC’s response time after receiving an error correction; and section 9 to clarify unjust enrichment, the reimbursement scheme and how HMRC repays interest owed on overpayments. In addition to these listed changes, other changes have been made to the Notice, including clarification of HMRC’s approach to VAT penalties and interest for accounting periods starting on or after 1 January 2023. (Contact: Adam Routledge)