Readers’ forum: Renovation

My client is a builder and last year did a lot of work on a bungalow that was in need of major renovation.

He charged VAT at 20% to a building contractor. The contractor has belatedly asked my client for a 15% VAT credit on the basis that the property had not been lived in for the two-year period before the work started so labour and materials were subject to 5% VAT.

The contractor has provided a letter signed by the person who lives next door to the property confirming that it had been empty for more than two years because the lady owner was transferred into a nursing home.

There is no other evidence of the empty period – should my client issue the VAT credit to the contractor? I can’t see why the credit is important anyway because the contractor is VAT registered...