Readers’ forum: VAT charged to flat tenants: is this a problem?

I am concerned that one of my new clients has scored a VAT own goal. To cut to the chase he purchased the freehold of a property – no VAT was charged by the seller – that consisted of a ground floor flat and first floor office; he converted the first-floor office into two flats.

He opted to tax the property with HMRC and rents out both flats and the shop – however the shop is rented to his daughter who runs a pet shop that is not VAT registered and he has not yet charged her any rent while she establishes her business.

My client had this great idea that if he charged the two flat tenants VAT on their rent then 100% of his property income would be VATable and therefore his decision to claim input tax on all costs since the project started would...