VAT Capital Goods Scheme Changes
VAT Capital Goods Scheme Changes: What Businesses Need to Know
The VAT capital goods scheme has changed, with new rules taking effect from 29 July 2026. The changes increase the threshold for property-related assets and remove computers and computer equipment from the scheme altogether.
For businesses investing in premises or equipment, it should mean fewer assets getting caught by a scheme that can involve monitoring and adjusting VAT for several years.
The property threshold rises to £600,000
The biggest change is to land, buildings and civil engineering works.
The expenditure threshold has increased from £250,000 to £600,000, excluding VAT. This means the capital goods scheme will now only apply where qualifying expenditure on these assets reaches at least £600,000.
It’s quite a jump, but perhaps not surprising when you consider that the previous £250,000 threshold had been unchanged since the scheme was introduced in 1990.
Property prices have moved on rather a lot since then. As values increased, more small businesses found themselves having to deal with capital goods scheme calculations when buying or refurbishing relatively modest premises.
HMRC says the higher threshold should reduce the number of assets falling within the scheme and remove some of those time-consuming calculations.
Computers are removed from the scheme
There’s another useful simplification for businesses investing in technology.
Computers and computer equipment are no longer eligible for the capital goods scheme. Capital expenditure on these items incurred from 29 July 2026 will therefore fall outside it.
The scheme requires businesses to monitor how certain capital assets are used over a number of years. If their use changes, the amount of VAT originally reclaimed may need to be adjusted.
Removing computer equipment and raising the property threshold should therefore reduce the administrative burden, particularly for smaller businesses.
What about existing assets?
Importantly, the changes aren’t retrospective.
Assets and expenditure that were already within the capital goods scheme before 29 July 2026 will continue to be dealt with under the previous rules. So, this isn’t a case of simply removing existing assets from your calculations because the thresholds have now changed.
A change several years in the making
This particular reform has taken a while to arrive.
The Office of Tax Simplification first proposed changes in 2017, followed by a call for evidence in July 2019. Implementation took several more years, and the Office of Tax Simplification itself was subsequently abolished in 2022, during Liz Truss’s short-lived Government.
For businesses, though, the important point is that the new rules are now in force.
If you’re investing significantly in property, refurbishing business premises or have assets already covered by the capital goods scheme, it’s worth making sure you know which set of rules applies.
