Upcoming changes to the capital goods scheme and what they mean for businesses

This is a UK VAT mechanism designed to ensure that the about of VAT a business reclaims on certain assets reflects the actual use of the asset.

Predominantly, it impacts businesses that are either partly exempt, or will let property to a connected partly, that is partly exempt.  It also comes into play when land and property is being transferred as part of a Transfer of a Going Concern (TOGC).

Overview of Changes

The UK Government intends to bring in a number of changes, aimed at simplifying the Capital Goods Scheme (CGS) by reducing complexity and easing administrative burdens for businesses. The key changes include:

• Removal of computers from the scheme: Computer hardware and similar equipment will no longer require tracking under the CGS
• Threshold increase for land, buildings and civil engineering work: The capital expenditure threshold is raised from £250,000 to £600,000 (excluding VAT), reducing the number of assets falling within the CGS

Sadly, there are no expected changes with regard to the CGS and other asset types, meaning the CGS will still apply to aircraft, ships, boats, and vessels valued at £50,000 or more (excluding VAT).

Summary Table

What This Means for Your Business

• Lower Administrative Load: Fewer capital items being subject to the scheme means fewer VAT adjustments over time—especially useful for small to midsize businesses
• Focus Shifts to Larger Projects: Only high-value investments (over £600,000, excluding VAT) in property-related assets now fall under the scheme

Time scale

It is currently anticipated that the changes will come into force on 1st April 2026.

Suggested Next Steps

1. Review upcoming capital projects: Consider the timing and take advice with regard to any potential VAT advantage of delaying the project until April 2026, if the cost is expected to exceed £250,000 but not £600,000
2. Communicate changes to stakeholders: Ensure finance teams and clients are aware of the simplified scope and thresholds.
3. Update internal accounting and advisory materials: Remove computers from CGS consideration.