There is no need to even be registered for VAT until your turnover exceeds £64,000, may have gone even higher since i was a customs officer in 2007, so just tell him that.
Unless you charged him VAT of course, which you shouldn't do if you aint registered.
Perhaps he is involved in some carousel fraud? Very easy way of making money a few years ago, they say they have cracked down on it, but HMRC is drastically underfunded and underbrained since the change from hmce to hmrc, most of the staff with knowledge took the redundancy leaving all the poor agency staff newly recruited to mess everything up.
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