Readers' forum : Frozen out

I act for a cafe on the south coast which is VAT-registered and run by an Italian married couple as a partnership. On the same premises there is an ice cream kiosk run by the wife as a sole trader. There are annual sales of £60 000 (mainly in the summer) and it is not VAT-registered. An HMRC officer has identified that two VAT mistakes have been made by the cafe.

First input tax has been claimed on some ice cream purchases that are relevant to the kiosk – the reason was that the kiosk could not afford to pay all its bills during the winter.

Second all building repair costs have been invoiced to the cafe and 100% input tax has been claimed even though the ice cream kiosk used part of the building. The partnership has a tenant repairing lease with the landlord ...