Major changes to Capital Goods Scheme
HMRC has announced a welcome simplification of the Capital Goods Scheme (CGS), reducing the administrative burden for many VAT-registered businesses. The changes, published on 8 July 2026, take effect from 29 July 2026.
The reforms remove outdated thresholds and significantly reduce the number of assets that will require long-term VAT adjustment calculations.
Computers removed from the CGS
Perhaps the most significant simplification is the complete removal of computers and computer equipment from the Capital Goods Scheme.
Previously, individual items costing £50,000 or more (excluding VAT) were subject to CGS adjustments over a number of years. Given the substantial fall in technology costs since the rules were introduced, very few computer purchases now exceed this threshold. HMRC has therefore concluded that the compliance burden outweighs any tax benefit.
From 29 July 2026, computers and computer equipment will no longer fall within the Capital Goods Scheme.
Higher threshold for property projects
HMRC has also increased the Capital Goods Scheme threshold for land, buildings and civil engineering works from £250,000 to £600,000 (excluding VAT).
The previous threshold had remained unchanged since 1990, despite significant inflation and rising property values. The increase means that many smaller construction and refurbishment projects will no longer be subject to the CGS, reducing the need for businesses to monitor input tax recovery over the adjustment period.
Transitional rules
The changes are not retrospective.
Capital expenditure first incurred before 29 July 2026 will continue to be governed by the existing Capital Goods Scheme rules. Only qualifying expenditure incurred on or after the implementation date will benefit from the new thresholds.
What businesses should do
Although these changes are intended to simplify VAT administration, businesses should review:
Current and planned capital expenditure projects.
VAT recovery calculations for property developments.
Accounting and ERP systems to ensure the revised thresholds are applied correctly from 29 July 2026.
Existing CGS records, which must continue to be maintained for assets acquired before the changes take effect.
Key takeaway
These reforms are a sensible modernisation of the Capital Goods Scheme. By removing computers from the regime and increasing the property threshold to £600,000, HMRC is reducing compliance costs while maintaining the integrity of VAT recovery rules for larger capital investments.
For many businesses, this will mean fewer assets requiring multi-year VAT adjustments and a welcome reduction in administrative complexity.