Software Contracting Services to US company which owns unrelated UK company

I am working with a client who is about to take on a contract to provide software consulting services to a US company. They only take on contracts with US companies. I understand from research and experience with other clients that these services would be VAT exempt and that registration for VAT is optional. The client (company A) they will be billing owns several online only software companies in the US but also one in the UK. They will be working for a child company of the client (company B) which is US based and the UK child company (company C) is a completely different industry and wholly unrelated to their work or the work of the child company (company B). Does the fact that company A owns an unrelated UK company change if they should charge them VAT or not? It would seem that the work is still VAT exempt given the location of the supply but I wanted to double check before I advise them on this.

In case it wasn't clear my client is running a UK LTD company and are not registered for VAT

It's not "VAT exempt", the supplies you describe are outside the scope of VAT. It matters because outside the scope of VAT means you can register for VAT optionally, whereas if your supplies are truly "exempt", then you have no right to register for VAT or reclaim input tax. The place of supply of services is primarily determined by where the contractual client is, in your post that seems to be Company B....or in other words, who is your client billing? You should also look at HMRC Notice 741A (Place of supply of services) and look at section 13 https://www.gov.uk/guidance/vat-place-of-supply-of-services-notice-741a#sec13 which covers "use and enjoyment rules", which in brief, if your client is supplying certain electronic services to a USA client but the services your client supplies are enjoyed in the UK (by Company C), then even though the place of supply indicates the customer is USA/outside the scope of VAT, the use and enjoyment rules shifts the liability back to the UK. Some useful examples within the HMRC internal manuals here https://www.gov.uk/hmrc-internal-manuals/vat-place-of-supply-services/vatposs15000

 

Hi. If a company supplies consulting services to a business overseas then the supply should be Outside the Scope Of VAT and the company would have no requirement to register unless they want to do so voluntarily. Please see the guidance below :   Place of supply of services (VAT Notice 741A)  . The Place of Supply of services is deremined partly by where the business customer is based and who is receiving the supply , who the contract is with etc. Please see the guidance below: 4. Establishment most closely concerned with the supply  . Thank you.