If your business is considering a capital purchase of between £250,000 and £599,999 in the next fortnight, you may wish to wait two weeks to take advantage of changes to the VAT Capital Goods Scheme (CGS).
What is the Capital Goods Scheme?
At the moment, when a business incurs qualifying expenditure on a capital asset (vs a trading stock item), they may recover VAT on acquisition based on the proportion of VATable supplies the business will make using that asset. The business must then monitor the use of the asset, and the recovered input VAT may be clawed back by HMRC if the proportion of VATable supplies made by the business using the asset drops.
For example, a business acquires a factory and uses it solely to create fully VATable widgets, entitling the business to 100% up-front input VAT recovery. But after four years, the business starts to make VAT exempt gadgets at the factory too, which are 25% of the business’s supplies: the business would be subject to clawback of some of the initially recovered input VAT.
Currently, the CGS mainly applies to:
- computers and computer equipment if the capital expenditure is £50,000 or more; and
- land, buildings and civil engineering works if the capital expenditure is £250,000 or more.
This includes the acquisition, construction, refurbishment, fitting out, alteration or extension (including the construction of an annex) of a building or a civil engineering work (or part of a civil engineering work).
The CGS changes
The threshold for land, buildings and civil engineering works was set in 1990 and has not been amended since. With rising property values, more properties and refurbishments have fallen within the scope of the CGS. Conversely, most computer equipment is acquired for less than £50,000 these days.
Therefore, from 29 July 2026:
- computers and items of computer equipment will be removed from the list of assets covered by the CGS; and
- land, buildings and civil engineering works will only fall within the CGS if the expenditure is £600,000 or more (exclusive of VAT).
Open adjustment windows
Where a CGS asset was acquired before 29 July 2026, the current CGS rules will continue to apply.
So, a building purchased for £500,000 on 28 July 2026 will be subject to a ten-year adjustment window, whereas the same building acquired on 30 July 2026 would not be subject to an adjustment window.
How it affects you
If your business is planning an acquisition of land, buildings or civil engineering works of between £250,000 and £599,999 in the next fortnight, it is likely to be advantageous to delay the purchase until 29 July 2026. This will avoid the admin burden of the CGS and the risk of input VAT clawback during the asset’s adjustment window.
But if your business is expecting to increase the proportion of VATable supplies it makes using the land, buildings or civil engineering works, it could be worth ensuring the acquisition takes place on or before 28 July 2026. Although you would have to deal with the admin burden of the CGS, you could be entitled to more input VAT recovery during the asset’s adjustment window which could make the additional administrative burden worthwhile.