Readers' forum : Flat rate dilemma

My question concerns the flat rate scheme (FRS) and a specific job that a client carried out on a building in London for a Jersey-based company.

My client is VAT-registered in the UK and has used the FRS since 2010. Apparently the Jersey company is not VAT-registered in the UK because it rents out the property to a business that cannot reclaim input tax. So it has never opted to tax the building and the rental income is exempt from VAT.

My client installed CCTV security equipment in the building and upgraded the door entry system (he provided labour only because the goods were purchased through a separate supplier). He charged 20% VAT on the job because the building is in the UK. He invoiced the company in Jersey but the customer has refused to pay the VAT on the ground that the work comes under the general...