FS
There will always be conflicting advice and differences of opinion as to what can and can't be done with regards to VAT, and mostly the VAT people don't always know either.
I am not an accountant but have been in business over 20 years, and survived many a VAT audit. Whirlygig obviously knows VAT law better than me, but I hope the info I posted will help you.
I have checked with my auditor again, and I am advised that provided that you show the proper INTENT to make VATable sales, there is no ruling under which the VAT man can claim the VAT back if you subsequently do not do so.
Remember, whilst Whirlygig is quite right about the size and power of the C & E, they cannot make up rules as they go along, and a demand for payment does not mean it is due.
Get some good advice and go with what you think is right for you, there is a lot to be gained.