The government has recently confirmed the implementation of some long-awaited changes to the VAT Capital Goods Scheme (‘CGS’), to be effective from 29^th July 2026. Given the short time between the government announcing this and the Go Live date, we wanted to make sure that everyone was aware of the changes.

The changes are:

• Increase in the threshold for taxable expenditure on land and buildings from the current level of £250,000 to £600,000.
• Removal of computers and computer equipment from the scheme entirely

Practical Implications

The latter of these is likely to have little effect on most businesses, as very few individual items of computer equipment exceeded the £50,000 threshold and, where this is incurred, businesses are likely to be fully taxable. Nevertheless, computing-intensive business and financial or healthcare institutions with large IT infrastructure should be aware of these changes.

The raising of the land and buildings threshold should have a wider effect and reduce the compliance for a lot of partially-exempt businesses. The threshold has been static since the introduction of the capital goods scheme in 1990 and £250,000 is now quite a low amount to spend on property. The increase to £600,000 will mean that a lot of more routine purchases and refurbishments fall outside the rules. This is, however, a smaller change than it could have been – an inflation-adjusted threshold would be very significantly higher!

HMRC’s policy is that this will only apply to items where the capital expenditure begins after 29^th July, so works in progress will be subject to the previous rules, as will significant land and property purchases which have already taken place.  It also means that this change will have no effect on assets currently under the CGS.  Similarly, when a business is sold as a Transfer of Going Concern (‘TOGC’), the business’s historic CGS obligations will continue in line with the ‘old rules’, whereas without the TOGC treatment the transfer would be under the ‘new rules’ going forward.

Any partially exempt businesses expecting to incur capital expenditure on land and buildings in the near future should be aware of these changes.

Disclaimer: The information in this article is for general informational purposes only and does not constitute tax, legal, or financial advice. Tax laws are complex and change frequently; individual circumstances vary significantly. Please consult with a qualified tax professional before taking any action based on this information.