Input tax problem

I have a farming client who spent £200 000 plus VAT two years ago (August 2006) converting an old barn on the farm into a very impressive self-contained unit. The unit is now being rented out to a manufacturing business for £30 000 per annum.

The client has recently had a VAT inspection and the Inspector identified that no option to tax election has ever been made on the property and the tenant has never been charged VAT on his rent. The Inspector has now disallowed £35 000 input tax claimed by my client on the basis that the input tax relates to an exempt supply.

My query is to explore whether we can salvage the situation by trying to convince HMRC to accept a backdated option to tax election; we can then issue a VAT only invoice to the tenant for the last two years' output tax...