Revised VAT Capital Goods Scheme rules came into force on 29 July 2026, raising the expenditure threshold for property related assets and removing computer equipment from the scheme.
The Capital Goods Scheme requires the VAT for very expensive, long-lived assets to undergo an ongoing annual review to adjust the input VAT which can be reclaimed. Under the changes, the threshold for land, buildings and civil engineering works to require this review has increased from £250,000 to £600,000, excluding VAT. The Capital Goods Scheme will therefore apply only where qualifying expenditure on these assets reaches at least £600,000.
Computers and computer equipment are no longer eligible. Capital expenditure on these items incurred from 29 July 2026 will fall outside the scheme.
HMRC said the reforms are intended to simplify VAT administration and reduce the burden on smaller businesses. The scheme requires businesses to monitor how certain capital assets are used over several years and adjust the VAT initially reclaimed when that use changes.
The property threshold had remained unchanged since the scheme was introduced in 1990. Rising property values meant that more small businesses were being drawn into adjustment calculations when buying or refurbishing relatively modest premises.
HMRC said increasing the threshold should reduce the number of assets covered and remove time-consuming calculations for affected businesses.
The changes are not retrospective. Assets and expenditure already within the scheme before 29 July 2026 will continue to be treated under the previous rules.
The reform was first proposed by the Office of Tax Simplification in 2017. A call for evidence followed in July 2019, but implementation took several more years. The Office of Tax Simplification was later abolished in 2022 during Liz Truss’s short-lived Government.
