Readers’ forum: Correcting option to tax oversight

I have recently taken on a new client who owns a commercial property in his own name which he rents out for £2 000 a month most of which is profit because he does not have a mortgage. The client had a bright idea three years ago to charge the tenant rent through his VAT registered limited company – rather than in his own name – which carries out management consultancy work. The reason was that it would save him 40% higher rate tax if the company paid corporation tax instead. The previous accountant drafted a fairly basic agreement between my client and his company giving the company the right to charge and retain the rent.

My question relates to VAT. The client thought that because the company was VAT registered he should charge 20% VAT to the tenant – the tenant can fully claim input tax. However...