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Government makes changes to the capital goods scheme

Author: ICAEW Insights

Published: 10 Jul 2026

From 29 July 2026, the capital goods scheme (CGS) will no longer apply to computers and computer equipment, and the threshold for land, buildings and civil engineering work will be increased from £250,000 to £600,000.
VAT incurred on expenditure on certain capital assets must be recovered in accordance with the CGS. Under the CGS, the initial VAT recovery is adjusted over a period of years – ten years for land, buildings and civil engineering works, and five years for other capital items – with the business reclaiming more VAT, or having to repay VAT claimed previously, if the proportion of its taxable supplies changes. 

Changes announced by the government mean that, with effect from 29 July 2026, the CGS: 

  • will no longer apply to capital expenditure on computers and items of computer equipment; and
  • will only apply to land, buildings and civil engineering works where the capital expenditure on these assets is £600,000 or more (exclusive of VAT). Currently, the CGS applies to land, buildings and civil engineering works where the capital expenditure is £250,000 or more (exclusive of VAT). 

The government says that the changes are intended to “simplify the administration of the VAT system and to reduce the administrative burden on small businesses who have been subject to complex and time-consuming CGS calculations”.  

The changes are given effect by the Value Added Tax (Amendment) Regulations 2026, SI 2026/765. They were first announced in April 2025, following the publication by the government of a call for evidence (CFE) in July 2019, and a summary of responses to the CFE, in March 2021.  

In its response to the call for evidence, ICAEW recommended that the government limit the CGS to property purchases only and significantly increase the threshold for property purposes.  

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