Readers' forum : Fee consequences

We act for an engineering company and all turnover is standard rated for VAT purposes. The company does not use the cash accounting scheme.

In December 2017 the company sold its trading premises for £1m and moved into a rented factory. The property sale was exempt from VAT. In the VAT return to 28 February 2018 we claimed input tax of £5 000 on the estate agent’s fee for the sale. However this return has been queried by an HMRC officer who says that input tax cannot be claimed because the expense relates to exempt income. He is going to consider charging penalties as well as raising an assessment.

I would have expected that the amount of £5 000 falls within the annual partial exemption de minimis limit so there should not be a problem claiming input tax. Do readers agree or have I misunderstood the...