IML Ltd a nursery school purchased a commercial property, opted to tax and registered for VAT. The whole of the top floor of the property has been let to ABB Ltd a charity (religious) and who have moved in. The space will be used for meetings and conferences and at weekends the space will be used for religious activities.
The ground floor, smaller floor space, will be used by the owner to run a nursery (a new company IMB Ltd has been incorporated). IML Ltd director is a trustee in ABB Ltd. IML Ltd currently charge VAT to ABB Ltd and will do the same when IMB Ltd starts running the nursery.
IML Ltd is trying to claim the VAT it incurred on the purchase of the commercial property through the quarterly VAT returns. The VAT office has suspended the returns saying the above transaction is not a taxable supply quoting Notice 742a sections 13 and 3.5 see below.
What is the best way forward?
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