HMRC has confirmed long-awaited changes to the VAT Capital Goods Scheme (CGS), aimed at reducing the administrative burden for VAT-registered businesses that incur VAT on capital expenditure.
The changes take effect from 29 July 2026 and simplify the scheme in two important areas: computer equipment and land, buildings and civil engineering works.
From that date, computers and items of computer equipment will be removed from the list of assets covered by the CGS. This means businesses will no longer need to monitor VAT recovery on qualifying computer equipment over the scheme’s adjustment period. HMRC notes that this category has become largely redundant, as the value of individual computer assets has fallen significantly since the rules were introduced and the threshold is now rarely triggered.
The second change increases the expenditure threshold for land, buildings and civil engineering work from £250,000 to £600,000, excluding VAT. The CGS will therefore only apply to these assets where capital expenditure is £600,000 or more. This is a significant shift, particularly for smaller businesses and organisations undertaking property purchases, refurbishments, extensions or fit-outs that previously fell within the scheme.
The CGS was introduced to ensure that VAT recovered on major capital assets reflects how those assets are used over time. For land and buildings, this usually means monitoring use over a ten-year period and making VAT adjustments if the taxable, exempt or non-business use of the asset changes. While the scheme remains important for larger projects, it can be complex and time-consuming for businesses whose capital spending is relatively modest. Increasing the threshold should remove many lower-value property projects from the rules and reduce the need for ongoing calculations and record keeping.
The background to these changes is also worth noting. Both measures reflect recommendations made in the Office of Tax Simplification’s 2017 VAT report. Ruth Corkin, Principal Indirect Tax at Hillier Hopkins, researched this area and drafted the recommendations, which called for the land and property CGS threshold to be reviewed and for the treatment of computer equipment to be reconsidered.
For businesses, the immediate message is to review planned capital expenditure carefully. The new rules apply from 29 July 2026, so the timing of property-related spending could affect whether the CGS applies. Businesses with existing CGS assets should also continue to monitor current obligations, as transitional rules may preserve the old treatment for expenditure incurred before the commencement date.
