Readers’ forum: Partial exemption

I act for a VAT registered property landlord – their portfolio consists of two commercial properties where there is no option to tax election in place and one where there is a mixture of commercial and residential parts – there is an option to tax in place on this property and VAT is charged on rent for the commercial shops but not for the apartments.

Our strategy has always been to claim no input tax on costs relevant to the two unopted properties because all the rent is exempt from VAT. With regard to input tax on costs relevant to the opted building we claim input tax based on the ratio of taxable rent from the commercial lettings compared to the total rent from the building including the residential income. We do an annual adjustment at the end of March.

A colleague says we have overclaimed...