Prudential’s Supreme Court defeat sets a new standard for how insurers must handle VAT on success fees after group restructurings - reshaping the rules for the industry’s biggest players.
The United Kingdom Supreme Court, in a decision given on September 11, 2025, addressed a long-standing question for the insurance and financial services sector: When does a success fee, paid years after investment management services end and after a group restructuring, trigger a VAT liability? The case, [2025] UKSC 34, was brought by The Prudential Assurance Company Ltd against the Commissioners for His Majesty’s Revenue and Customs (HMRC), with £9,330,805.92 in success fees - and the application of VAT - at issue.
The facts are clear and significant. Silverfleet Capital Limited provided investment services to Prudential’s with-profits fund under two consecutive agreements, the first effective from January 1, 2002, to December 31, 2003, and the second from January 1, 2004, to November 8, 2007. During this period, both Silverfleet and Prudential were members of the same VAT group. Under UK law, any supply by one member of a VAT group to another is disregarded for VAT purposes, so the quarterly management fees paid to Silverfleet were not subject to VAT.
The agreements also provided for success fees, payable to Silverfleet if certain sub-funds exceeded a set benchmark rate of return. On November 8, 2007, a management buy-out resulted in Silverfleet leaving Prudential’s VAT group and ceasing its investment management services. In 2014 and 2015, the hurdle rate was passed, and Silverfleet invoiced Prudential for success fees totalling £9,330,805.92, with VAT at 20%. The invoices were issued on various dates between January 16, 2015, and July 11, 2016.
Prudential queried the VAT, making a non-statutory application to HMRC. HMRC decided that VAT was properly added to the invoices. Following a statutory review, HMRC maintained this decision on October 12, 2018. Prudential appealed to the First-tier Tribunal (Tax Chamber), which allowed the appeal and held that no VAT was payable. HMRC appealed, and the Upper Tribunal allowed the appeal, deciding that VAT was payable. The Court of Appeal, by a majority, dismissed Prudential’s appeal, holding that the success fees were subject to VAT.
The Supreme Court dismissed Prudential’s appeal. The Court held that under UK and EU VAT law, the timing of the chargeable event for VAT purposes - where services are supplied for a period and consideration is determined or paid from time to time - can be set by when the payment or invoice occurs, not just when the services are performed. Since the success fee was only triggered and invoiced after Silverfleet left the VAT group, the supply was not disregarded and VAT was due.
