I recently took over book-keeping for a client who had previously partially converted a property to residential. The owner previously opted to tax the property and it was let as a commerical premises for some time, so I understand.
I believe that the residential part of the property now should be rented out with the rent exempt from VAT, and the commercial part rented out with VAT added - and this is what has been happening. Costs incurred are split upon area rented, or another rate if more appropriate (e.g. electricity is split on usage) - with the VAT not being reclaimed on the part relating to residential.
I'd like some comfort that this is correct!
Also, should there be some paperwork filled in for HMRC to unelect the residential part of the property for VAT?