HMRC has finally announced significant changes to the VAT Capital Goods Scheme (CGS), representing the first major reform of the regime in decades. The changes are designed to reduce the administrative burden on VAT-registered businesses and will take effect from 29 July 2026.
What is changing?
There are two key amendments:
- The CGS threshold for land, buildings and civil engineering works will increase from £250,000 to £600,000 (exclusive of VAT).
- Computers and computer equipment will be removed from the CGS altogether.
The government has stated that the objective is to simplify VAT administration and remove the need for many businesses to undertake complex CGS calculations and annual adjustments.
Why does this matter?
The Capital Goods Scheme requires businesses to monitor the use of certain high-value assets over a number of years and adjust the amount of VAT recovered if the taxable use of those assets changes. For land and buildings, the adjustment period is typically ten years.
By increasing the threshold to £600,000, many smaller property acquisitions, refurbishments and construction projects that would previously have fallen within the CGS will no longer be subject to these ongoing compliance requirements. Businesses will therefore avoid the need to:
- Maintain CGS records;
- Perform annual CGS calculations;
- Monitor changes in use over a ten-year period; and
- Adjust historic VAT claims if property use changes in the future.
Transitional considerations
The changes are not retrospective. HMRC’s policy paper indicates that the new £600,000 threshold will generally apply only where qualifying expenditure is first incurred on or after 29 July 2026. Projects that have already incurred expenditure before that date are expected to remain subject to the existing £250,000 threshold and current CGS rules.
This transitional point may be particularly important for organisations currently planning property developments or major refurbishment projects, as the timing of expenditure could affect whether the asset falls within the CGS regime.
A note of caution
Whilst many businesses will welcome the reduction in compliance obligations, there is a potential downside. Assets valued between £250,000 and £600,000 will no longer benefit from future CGS adjustment opportunities. Consequently, organisations expecting their taxable use to increase over time may lose the ability to recover additional VAT through annual CGS adjustments.
Conclusion
The reforms represent a welcome simplification for many VAT-registered businesses, charities, schools and property owners. From 29 July 2026, fewer property projects will fall within the CGS and computers will cease to be included altogether. However, organisations with planned capital expenditure should carefully consider the transitional rules and the potential impact on future VAT recovery before deciding when to incur costs.
How HaysMac can help
If your organisation is planning a property acquisition, refurbishment or construction project, now is a good time to review how these changes could affect your VAT position. Our VAT team can help you understand the transitional rules, assess the impact on VAT recovery and ensure your capital projects are structured as efficiently as possible.
