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Has VAT on expenses been wrongly reclaimed, and how should it be repaid?
My client runs a petrol station as a sole trader but also owns four buy-to-let residential properties in his own name. Together with his wife he owns some land and commercial barns near the petrol station and these are rented out as a separate activity. There is no VAT registration or option to tax elections relating to this jointly-owned property.
The problem is that he has claimed all of the VAT on the property expenses through his petrol station registration. This came to about £11 000 in the year ended 31 March 2014 of which £4 000 related to the residential properties and £7 000 to the commercial units.
Presumably the claim was an error. Because the VAT exceeds £10 000 will we need to complete a VAT652 form rather than simply adjust it on the next return? Also will HMRC charge any interest...
