Readers’ forum: Can VAT cost be minimised with separate entity

Two of my clients are registered for VAT as a partnership – trading as florists – and they also own a buy-to-let flat which has always been rented out on a short-term tenancy arrangement ie the income is exempt from VAT. They have now decided to rent out the flat through Airbnb to short term visitors which is VATable income. They have suggested the following strategy:

• The Airbnb income will be earned by a separate legal entity a limited company that is also VAT-registered because it trades as a computer consultancy business.
• The partnership will charge rent of £1 200 per month to the company – the market rate – which will still be exempt from VAT.
• The annual income projected for the Airbnb activity is £18 000 so the company will pay output tax of £600 a year on the profit margin and also...