Prudential Assurance Company Limited v Her Majesty's Revenue & Customs

Facts

The appellant, Prudential Assurance Company Limited, the representative member of the Prudential UK VAT group, entered into a joint venture with the South African insurer Discovery Holdings Limited and its UK subsidiary Discovery Offshore Holdings Limited to market a new health insurance product in the United Kingdom. The vehicle, PAKRA Limited (later Prudential Health Limited), was incorporated on 20 February 2004 and a Shareholders Agreement was entered into on 1 March 2004, conditional on approval from the South African Reserve Bank, which Discovery needed before it could subscribe for shares, and authorisation from the Financial Services Authority, which PAKRA needed before it could trade. Until those consents were obtained PAKRA remained a wholly-owned subsidiary of the appellant, which met the bulk of the set-up costs, intending to invoice them to PAKRA once matters were settled. On 27 May 2004 the appellant applied for PAKRA to join its VAT group, disclosing that PAKRA would make no supplies while grouped and that some £13m of set-up costs would be invoiced to it. By letter of 19 August 2004 Customs refused the application as necessary for the protection of the revenue, on the footing that the resulting revenue loss went beyond the normal consequences of grouping. The appellant appealed.