My rug dealer

My client is VAT-registered as a sole trader (he is a carpet retailer) and has annual sales of about £600 000. He and his wife have just bought a plot of land and plan to build a new house which will be rented out as a business venture when completed.

As far as VAT is concerned there was no charge on the purchase of the land and the services of the builder they are using (including his materials) will be zero rated. The main VAT charge will be for professional fees estimated to be £60 000 plus VAT.

We advised our client that he and his wife could not VAT-register as a partnership to claim input tax on the professional fees because the rental income is exempt from VAT.

However another accountant has apparently told my client that if the property was to have been...