What the Capital Goods Scheme does
Normally you reclaim VAT on a purchase based on how you intend to use it when you buy it. For large capital items that will be used over many years, that first decision may not stay accurate. The Capital Goods Scheme (CGS) looks again at the VAT recovered each year, over an adjustment period, and makes an adjustment if the proportion of taxable use goes up or down.
It matters most for businesses that are partly exempt, or whose use of a building changes, for example a commercial property that moves from taxable to exempt letting, or a business that starts to use part of its premises for exempt activities.
Which items are covered after the July 2026 changes
The thresholds changed on 29 July 2026. For items acquired on or after that date, the scheme covers:
- Land and buildings, including civil engineering works and refurbishments, with a value of £600,000 or more excluding VAT. The adjustment period is normally 10 intervals.
- Aircraft, ships, boats and other vessels with a value of £50,000 or more excluding VAT, adjusted over 5 intervals.
Computers are no longer treated as capital goods items. Items acquired before 29 July 2026 stay under the previous thresholds, so older property purchases and computer equipment already in the scheme still need adjustments until their periods end. HMRC's updated Capital Goods Scheme guidance explains the rules.
How adjustments are calculated
For each interval after the first, the taxable use percentage for that year is compared with the percentage used in the first interval. The difference is applied to a fraction of the original VAT, and the result is either paid to HMRC or reclaimed. The adjustment normally goes into the VAT account for the second tax period after the end of the interval. If the item is sold before the period ends, a final adjustment covers all remaining intervals.
How we help
- We review your capital purchases and building works to identify every item that falls within the scheme, under the old or new thresholds.
- We build a CGS register showing the original VAT, the start date, the adjustment period and each year's use.
- We calculate the annual adjustment alongside your partial exemption calculations and include it on the right return.
- Before a sale, lease or change of use, we model the effect so there are no surprises.
Our pages on VAT on commercial property and capital allowances claims cover related areas for property owners.
What we'll need from you
Purchase and construction invoices, completion dates, details of how the property or asset has been used each year, and any previous CGS workings.
Property owners in Kent
We help property investors, developers and businesses with their own premises across Kent keep track of these long-running adjustments. Send us a message with details of the property and we will explain whether the scheme applies.
Frequently asked questions
Do the new thresholds apply to property I bought before 29 July 2026?
No. HMRC's guidance says the old thresholds continue for items acquired before 29 July 2026. A building bought earlier at £250,000 or more, or computer equipment that was already a capital item, still needs adjusting until its period ends. Only items acquired on or after that date use the new values.
Does the scheme only matter if I am partly exempt?
Mostly, yes. Adjustments arise when the taxable use of an item changes. A fully taxable business that stays fully taxable will usually have no adjustment to make. But a change of use, an exempt letting or a sale without an option to tax can all trigger adjustments, even for a business that was fully taxable when it bought the building.
What happens if I sell a building within the adjustment period?
The sale produces a final adjustment for all the remaining intervals. If the sale is taxable, those intervals are treated as fully taxable, and if it is exempt they are treated as fully exempt. An exempt sale can therefore mean repaying a significant amount of VAT, so we look at the position before you agree terms.
Is refurbishment work covered as well as purchases?
Yes. Capital expenditure on building, refurbishing, fitting out, altering or extending a building can be a capital item in its own right if it reaches the threshold. We look at the total qualifying spend on a project to decide whether it falls within the scheme.
VAT Capital Goods Scheme Calculations across Kent
We help clients throughout the county, including: