Readers’ forum: Input tax concerns

One of my clients has agreed an unusual deal with another business. In essence the other business has bought a prestige car for £100 000 (no VAT) which requires a lot of work on it to bring it up to a drivable standard.

My client will use the services of vehicle repairers and restorers to carry out the work; they will all invoice his VAT registered business for the labour and parts they supply. The total cost will be about £100 000 plus VAT and my client will claim input tax. The vehicle will then be sold it is hoped for about £340 000; the business that owns it will account for output tax on the profit with the VAT margin scheme say £40 000 leaving £100 000 profit on the deal. My client will invoice the other business for £150 000 plus VAT...