HM Revenue & Customs (HMRC) has outlined plans to amend the current Capital Goods Scheme (CGS). While the specifics – including an implementation date – remain unconfirmed, businesses should stay informed about the potential changes.
What is the Capital Goods Scheme?
The Capital Goods Scheme is applied when reclaiming VAT on expensive capital items like land or property. The CGS allows the initial recovery of VAT to be determined under the normal rules, this is then reviewed over time and recovery is adjusted if the amount of taxable use of the asset changes.
Taxable and exempt use is reviewed at ‘intervals’ and if there has been a change, a VAT adjustment is calculated. The first CGS interval starts when the asset is initially used and ends at the next VAT year end date; subsequent intervals are aligned with the VAT year.
Only capital assets are included in the scheme, so essentially assets that have been used in a business to make taxable supplies. Taxable supplies are goods or services on which VAT can be charged.
If the capital asset is only used for taxable supplies, all the VAT can be reclaimed. If the asset is used partly for business and partly for making exempt or non-business supplies, only a proportion of the VAT can be reclaimed.
Assets currently included in the scheme
- Buying land, a building or part of a building or civil engineering work costing £250,000 (exclusive of VAT) or more;
- Constructing a building or civil engineering work costing £250,000 (exclusive of VAT) or more;
- Refurbishing, fitting out, altering or extending a building or civil engineering work costing £250,000 (exclusive of VAT) or more;
- Purchasing, constructing, refurbishing, fitting out, altering or extending an aircraft, ship, boat or vessel costing £50,000 (exclusive of VAT) or more; and
- Individual computers or items of computer equipment costing £50,000 (exclusive of VAT) or more.
Changes to the scheme
Computers and computer equipment are due to be removed from the qualifying assets covered by the scheme during this Parliament.
The other notable change is an increase in the capital expenditure value of land, buildings and civil engineering work from £250,000 to £600,000 (exclusive of VAT.) Again, no specific date has been set for this change, only that the government will make the changes ‘in this Parliament.’
Many businesses are likely to welcome the change, as it reduces the number of capital assets subject to the scheme. However, some may feel the increase does not go far enough—especially given that some respondents to the initial consultation had advocated for a £1 million threshold.
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 email enquiries@mapartners.co.uk
