A digital download of software is an electronically supplied service. Subject to the new €10,000 threshold for B2C supplies, electronically supplied, or digital, services for both businesses, (B2B) and consumers (B2C) are supplied where the customer belongs. The responsibility for accounting for any VAT due in the customer’s Member State depends on whether it is a B2B or B2C supply. Digital services to an unregistered business should be treated as B2C.
- For B2B supplies, where the supplier and customer belong in the same Member State, it is the supplier’s responsibility to account for any VAT due. However, where they belong in different countries, the customer accounts for the VAT due on the supply under the reverse charge mechanism.
- For B2C supplies, the responsibility to account for VAT on digital services sits with the supplier. The Mini One Stop Shop (MOSS) simplification allows suppliers to deal with their obligations in other Member States through a single MOSS return.
It appears that, in the case of your client, the supplier in Ireland is treating the software as a B2C supply to a UK consumer, and charging and accounting for UK VAT under an Irish MOSS registration.
As your client is a VAT registered business, the UK VAT charged by the ROI supplier is not correctly charged. There is no right of recovery for input tax that has been incorrectly charged; this was confirmed in the ECJ case of Genius Holdings
It is therefore NOT okay to claim the VAT on the clients UK VAT return. Your client should contact the supplier to request the VAT charged be credited on the basis that this is in fact a B2B supply; the UK VAT number will evidence this. A supplier that has treated a supply as B2C must amend the treatment and treat it as a B2B transaction when provided with the customer’s VAT number as long as this was valid at the time of supply. This is set out in the Explanatory Notes to the rules when they came into force in 2015 – link below:
As the correct treatment is for the VAT to be reverse charged in the UK by your client, we recommend that the invoice is reported as a purchase of services from outside the UK on the VAT return covering the period in which the service was received, based on the net value charged.
Notice 741A: Sections 3 and 4 provide information on establishing where a customer belongs; section 5 covers reverse charges; section 6.2 and section 13 provide details of B2B electronically supplied services.
Information on B2C digitally supplied services can be found at https://www.gov.uk/guidance/the-vat-rules-if-you-supply-digital-services-to-private-consumers
The case referred to is Genius Holding BV v Staatssecretaris van Financiën (Case 342/87).  BVC 52
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