Background

The Capital Goods Scheme (CGS) requires VAT-registered businesses to adjust VAT recovered on certain capital assets over a number of years, reflecting how those assets are actually used. It currently applies to computers and computer equipment or aircraft, ships, boats, and other vessels costing £50,000 or more, and land, buildings and civil engineering works costing £250,000 or more (both exclusive of VAT).

In April 2025, the government confirmed changes to simplify the scheme including uplifting the current threshold on the value of land, buildings, and civil engineering works and removing computers and computer equipment from the scheme.

HMRC have confirmed that these changes will take effect from 29 July 2026.

Key Point 1: Uplift from £250,000 to £600,000 for land, buildings, and civil engineering works

For Projects where capital expenditure is first incurred on or after 29 July 2026 the new threshold of £600,000 (exclusive of VAT) will apply. For the purposes of the CGS, capital expenditure includes professional services such as architects.

From HMRC’s publication, any capital expenditure incurred prior to 29 July 2026 will fall within the current rules and thresholds. Meaning ‘live’ projects, where capital expenditure has been incurred previously, or will be incurred before 29 July 2026, will remain within the scheme if they meet the current £250,000 threshold.

Key Point 2: Removal of computers and computer items

As technology has modernised, costs for computers and computer equipment have fallen, making the current threshold of £50,000 for single pieces of computer equipment largely redundant.

To reflect this change, from 29 July 2026, any expenditure incurred on single computers or computer equipment will not fall within the capital goods scheme and only be subject to ‘normal’ input tax rules.

Key Point 3: VAT Opportunities

Organisations considering capital expenditure should take advice on whether it will be more VAT efficient to hold off incurring expenditure until 29 July.  There is not a ‘one size fits all’ solution here, some organisations will benefit from utilising the current rules, and taking advice to understand the position is critical.

Further Information

The full text of the publication is available on the GOV.UK website. Organisations who require guidance on their specific circumstances are encouraged to contact our free VAT helpline on info@BBVAT.co.uk as errors can result in assessments, interest and penalties.

This article is a general summary for information purposes only and is not professional VAT or legal advice. Businesses should consult a qualified adviser about their specific circumstances.