ew regulations will come into force on 29 July 2026 which will increase the minimum value of capital expenditure on land, buildings or civil engineering work which falls within the scope of the capital goods scheme to £600,000 (excluding VAT) and see the removal of computers and items of computer equipment from the scope of the capital goods scheme.
Published: 14 July 2026
Authors: Thomas Wilkinson
What is the capital goods scheme
The capital goods scheme (the CGS) is a statutory mechanism for adjusting VAT recovery on expenditure on certain capital assets over a period of years (known as an adjustment period).
Under the CGS, a taxpayer will initially recover VAT on capital expenditure falling within scope of the CGS in accordance with the extent to which the taxpayer intends to use the capital asset to make taxable supplies. The taxpayer is then required to monitor the extent to which it makes taxable supplies with the capital asset during each year of the adjustment period. If taxable use increases during the adjustment period, additional VAT on the initial capital expenditure can be recovered by the taxpayer from HMRC and, similarly, if taxable use decreases during the adjustment period, some of the VAT previously recovered will need to be repaid to HMRC.
The CGS does not apply to expenditure on all capital assets – it only applies to expenditure on land and buildings, civil engineering works, computers, aircrafts and ships. Furthermore, it only applies where the level of expenditure on specified capital assets exceeds a particular threshold (excluding VAT). For expenditure on land and buildings, that threshold is £250,000.
What are the changes
Aiming to simplify the administrative burden which can result from complex and time-consuming CGS calculations, new regulations (Value Added Tax (Amendment) Regulations 2026 (SI 2026/765)) will come into force on 29 July 2026 which:
- increase the CGS expenditure threshold for land, buildings and civil engineering work from its current value of £250,000 (exclusive of VAT), to £600,000 (exclusive of VAT) – in other words, expenditure on these items falling below the increased threshold will not be within scope of the CGS and traders will therefore be able to recover VAT on such expenditure in the usual manner without any requirement to monitor future use during an adjustment period; and
- remove computers and items of computer equipment from the scope of the CGS – traders will therefore be able to recover VAT on expenditure on these items in the usual manner (and without the requirement to monitor future use) regardless of the level of expenditure incurred.
Our view
Given that the previous threshold of £250,000 applicable to expenditure on land and buildings has remained unchanged since the scheme was introduced in 1990, an uplift in the thresholds was long overdue.
Whilst these changes are therefore welcome, the computer ‘category’ is, as HMRC note, already largely redundant as it is very rarely triggered; so this change is unlikely to have much impact for most taxpayers.
Furthermore, real estate values mean that few commercial properties fall below the £600,000 threshold and therefore the CGS will continue to be relevant where VAT is paid on the acquisition or construction of a building.
Where we expect the increased threshold will have greater practical impact will be when considering the application of the CGS to capital expenditure involving the refurbishment, fitting-out, alteration or extension of an existing property.
It should also be noted that for properties already within the CGS where the expenditure was previously less than £600,000, the old regime will effectively continue to apply requiring taxpayers to continue to monitor use for the remainder of the adjustment period.