VAT Capital Goods Scheme: what the new changes mean for businesses

HMRC has confirmed two changes to the Capital Goods Scheme (CGS), the VAT mechanism used to adjust input tax recovery on certain high-value capital assets over their economic life. Both changes take effect on 29 July 2026, and both are designed to reduce the administrative burden on smaller businesses. For many, the effect is simple: fewer assets inside the scheme, and fewer annual adjustment calculations to run.

What is changing?

• The capital expenditure threshold for land, buildings and civil engineering works rises from £250,000 to £600,000 (excluding VAT). The CGS will only apply to these assets where expenditure reaches £600,000 or more.
• Computers and items of computer equipment are removed from the scheme entirely. The CGS previously applied to a single computer or item of computer equipment costing £50,000 or more.

The land and property threshold has stood at £250,000 since the scheme began in 1990. As property values have risen, more smaller businesses have been drawn into the scheme and its complex adjustment calculations. The computer category has become redundant, as the cost of a single item of computer equipment now rarely reaches the threshold.

What does this mean?

• Many businesses, particularly smaller ones, will no longer hold any assets within the CGS. That removes the annual adjustment calculations the scheme requires, along with the supporting record-keeping.
• The changes apply only to capital expenditure incurred on or after 29 July 2026. Where you incurred expenditure on an asset before that date, the current thresholds and rules continue to apply to that asset for the rest of its adjustment period.
• Timing matters for anything close to the operative date. Expenditure incurred before 29 July 2026 remains subject to the £250,000 threshold, so businesses planning significant property works should map spend against the change.

What is not changing?

• The CGS remains in place for land, buildings and civil engineering works at £600,000 or more.
• The adjustment period and method for assets that stay within the scheme are unchanged.
• Business : Non-Business calculations, Partial exemption and the wider VAT recovery rules that sit alongside the CGS continue to apply.

How can Price Bailey help?

If you are unsure whether an asset falls within the revised scheme, or you are planning capital expenditure close to 29 July 2026, our VAT team can help you review your position and confirm the treatment. Fill out the form below to find out more.