Businesses may find they have fewer ongoing VAT obligations following an increase to the Capital Goods Scheme threshold from £250,000 to £600,000 (excluding VAT). The change means that a smaller number of assets will fall within the scheme, reducing the need for long-term monitoring and annual VAT adjustments.
The previous threshold had remained unchanged since the Capital Goods Scheme was introduced in 1990. The increase reflects the growth in property values over that time and is intended to reduce the number of assets covered by the scheme.
The new threshold applies to qualifying expenditure on land and buildings acquired on or after 29 July 2026.
A reminder of the Capital Goods Scheme
The Capital Goods Scheme applies to certain high-value capital assets and is designed to ensure that the amount of VAT a business reclaims reflects how the asset is used over time.
For example, if a business initially reclaims all of the VAT on a commercial building because it is used to make taxable supplies, but later starts using part of the building for VAT-exempt activities, the amount of VAT originally reclaimed may need to be adjusted. Likewise, if the taxable use of an asset increases, the business may be able to recover additional VAT.
- If an asset is used entirely to make taxable supplies, the VAT can generally be reclaimed in full; and
- Where it is used partly for exempt or non-business purposes, only the appropriate proportion of VAT can be recovered.
The scheme works by spreading the VAT adjustment over a number of years, known as the adjustment period, rather than relying solely on the asset’s intended use when it was purchased. For land and buildings, this adjustment period is 10 years.
The changes
The new rules apply from 29 July 2026 and include two key changes:
- Computers and computer equipment are no longer within the scope of the Capital Goods Scheme.
- The capital expenditure threshold for the Capital Goods Scheme for land, buildings and civil engineering works has increased from £250,000 to £600,000 (excluding VAT) for qualifying expenditure incurred on or after 29 July 2026.
There are no changes to the Capital Goods Scheme rules for aircraft, ships, boats and other vessels.
What this means in practice
Where qualifying expenditure falls below the new £600,000 threshold, businesses must still determine how much VAT they can recover when the asset is purchased. The normal VAT recovery rules continue to apply, including the partial exemption and business/non-business use rules where relevant.
The key difference is that these assets are no longer subject to the Capital Goods Scheme. This means businesses will not need to monitor the asset’s use and make annual VAT adjustments.
Existing assets
The new £600,000 threshold only applies to land, buildings and civil engineering works acquired, constructed, refurbished, fitted out, altered or extended on or after 29 July 2026.
Any capital item that was already within the Capital Goods Scheme under the previous £250,000 threshold will remain in the scheme until the end of its adjustment period. Businesses must therefore continue to make any required annual adjustments for those assets, even where the adjustment period continues beyond 29 July 2026.
How M+A Partners can help
M+A Partners’ VAT specialists offer tailored advice on input tax recovery and the application of the Capital Goods Scheme.
To find out more about how we can assist with your VAT obligations, please get in touch with our expert below or your usual M+A Partners’ adviser.