Readers' forum: Input tax dilemma

I act for a not-for-profit entity that owns about 700 parcels of land and some derelict buildings. The land and buildings were given to my client by the local council about seven years ago. The aim is that the sites (which in some cases are very small) will be sold off or put to good use by being given away over the next ten years. An option to tax is in place on about 100 of them with rent charged on about 60 (plus VAT) because a tenant is in place.

My client receives an annual invoice from the council (plus VAT) to cover all maintenance and landscaping work carried out on the 700 sites – this could relate to services such as cutting the grass in the summer or dealing with routine maintenance work. My client has claimed all of this VAT as input tax for the past seven...