UK VAT Capital Goods Scheme 2026/27 — New Thresholds

The UK VAT Capital Goods Scheme (CGS) changed from 29 July 2026. For new qualifying expenditure from that date, computers and computer equipment are removed from the scheme, while the threshold for land, buildings and civil engineering works rises from £250,000 to £600,000 exclusive of VAT.

The change is a simplification of the VAT adjustment regime. It does not mean that all capital purchases are automatically outside VAT, that VAT on a computer is always recoverable, or that an existing CGS asset can simply be removed from its adjustment schedule. The HMRC Capital Goods Scheme notice remains the detailed source for assets, intervals, use changes and disposals.

What is the Capital Goods Scheme?

The CGS is a VAT adjustment mechanism for certain high-value capital items used by a VAT-registered business. Instead of treating the original VAT recovery as permanently fixed, the scheme spreads the recovery review over an adjustment period. If the asset's taxable, exempt or non-business use changes, the business may need to adjust the VAT originally recovered.

That is different from the first question of whether VAT is charged and whether the business has a right to recover it. A computer can still carry VAT under the ordinary VAT rules even though new computer expenditure is no longer within the CGS. Similarly, a building can be above or below the CGS threshold without answering whether the business's supplies are taxable or exempt.

The scheme is therefore a timing and adjustment framework, not a general VAT refund. First identify the supply, the asset, the business use and the right to deduct input VAT. Then test whether the asset is inside the CGS under the date and threshold rules.

What changed on 29 July 2026?

The change only affects items within the CGS list. It does not create a new entitlement to recover VAT on an asset used for exempt supplies, private purposes or non-business activity. The ordinary input-tax rules and partial-exemption rules still determine how much VAT can be recovered.

Does the £600,000 threshold include VAT?

No. HMRC describes the land, building and civil-engineering threshold as exclusive of VAT. A business should compare the relevant capital expenditure amount before adding the VAT charged on the supply.

The threshold is not a general property purchase price test. The business must identify the capital expenditure that falls within the CGS description and the related goods or services. A single project can also contain different elements, such as land, construction work, professional services, equipment, repairs and furniture. Do not assume that every invoice connected with a building automatically belongs in one CGS total.

For a property project, retain the contracts, invoices, completion records, VAT invoices and evidence showing what was acquired and when. If the project spans the operative date, the dates of supplies and expenditure can affect whether the old or new treatment applies.

What happens to a computer bought before 29 July 2026?

The policy material includes a transitional boundary. Where the owner incurred capital expenditure on the computer or computer equipment before 29 July 2026, the new removal from the scheme does not retrospectively erase the old treatment. Items already covered remain in the CGS until their normal adjustment periods end.

A business should therefore not delete an existing computer from its VAT records just because the 2026 policy has changed. Keep the original VAT recovery calculation and continue the required adjustments for an asset already inside the scheme. The new rule is relevant to new expenditure under the operative-date test, not a blanket reset of historical VAT returns.

The same principle matters for property. A project that received relevant supplies before 29 July 2026 may be tested under the previous threshold, while later expenditure may need a separate date and scope review. If the invoices, contracts or delivery dates are mixed, ask a VAT adviser to establish the correct transition rather than applying the new £600,000 figure to the whole project automatically.

How does the change affect computers?

The removal of computers from the CGS reduces the need for the multi-year capital-goods adjustment process for new computer expenditure. It does not change the ordinary conditions for input VAT recovery. A VAT-registered business still needs a valid VAT invoice, a business purpose and a connection with taxable business activities, subject to the ordinary restrictions and partial-exemption rules.

For example, a laptop used partly for private activity may need an ordinary business-use restriction even though the laptop is outside the CGS. A computer used by a business making exempt supplies can still raise an input-tax recovery issue. The CGS change is not a permission to claim the full VAT amount.

The accounting record should distinguish:

• the date the computer or equipment expenditure was incurred;
• the VAT charged and the supplier's VAT invoice;
• taxable, exempt, private and non-business use;
• whether the item was already in a CGS adjustment period; and
• the input-tax treatment used on the VAT return.

What if the business uses a property for mixed purposes?

Property use can change after the purchase or construction. A building may be used for taxable rents, exempt lettings, a private residence, employee accommodation, storage or a combination of activities. The CGS is designed to adjust VAT recovery when the use changes, but the revised threshold does not remove the need to track that use for a qualifying asset.

The UK option-to-tax guide explains a separate property-VAT decision. An option to tax does not by itself prove that a property is within the CGS or that all project VAT is recoverable. Likewise, the UK VAT registration guide covers registration and taxable turnover, not the CGS adjustment calculation.

If the project includes residential property, social-housing land, or a mixture of commercial and residential areas, preserve the floor-area and use analysis. The property income tax guide may help with a separate Income Tax question, but it cannot decide the VAT treatment of capital expenditure.

Adjustment periods and later changes

The threshold decides whether a qualifying item enters the CGS; it does not end the accounting work. HMRC's notice provides 10 intervals for land, buildings and other capital items and 5 intervals for ships and aircraft. The first interval begins with first use, subject to VAT having been incurred. Later intervals compare the extent of taxable use with the baseline recovery percentage. If taxable use rises or falls, the business calculates an adjustment rather than reopening the original purchase as if the asset were new.

For a building, first use can be linked to physical occupation, the grant of a lease or licence, acquisition or the first use of constructed or refurbished premises. A construction project can therefore have a different date for receiving supplies and for starting the adjustment intervals. Record both dates. If the business's interest lasts for fewer years than the normal adjustment period, HMRC's rules can shorten the period, subject to the minimum interval rules. A sale, part disposal, transfer into or out of a VAT group, or a change from business to non-business use can also require a specific disposal or adjustment review.

Keep a CGS schedule that shows the capital item, VAT-exclusive value, VAT incurred, input tax initially reclaimed, recovery method, first-use date, interval dates, adjustments due and any disposal value. HMRC says the ordinary VAT record period is not enough on its own because CGS adjustments may continue up to 10 years later. If an estimate was used to decide that a construction or refurbishment project exceeded the threshold, retain the contract, cost forecast and later reconciliation. Do not split a single refurbishment into artificial phases merely because invoices arrive on different dates; HMRC looks at the contracts and the substance of the work.

Version the schedule when the operative date, threshold or transitional treatment changes, and record the adviser or reviewer who approved each classification. A later software total should be traceable back to the original invoice and use analysis.

If an asset is partly held outside the business for private or non-business purposes, the business can make a documented choice at the time the expenditure is incurred to exclude that part. The excluded cost does not count towards the CGS threshold and its VAT is not deductible or later adjustable. That choice should be recorded contemporaneously; it should not be invented after a change in use to avoid an adjustment.

A practical review workflow

Frequently Asked Questions

Read HMRC VAT Notice 706/2 before changing a VAT return or asset schedule. This guide explains the 2026/27 scope change and is not a substitute for a case-specific VAT review of a mixed-use property or capital project.

Official sources

• HMRC: Capital Goods Scheme — VAT Notice 706/2
• HMRC: Revenue and Customs Brief 7 (2026) — Changes to the VAT Capital Goods Scheme
• HMRC: Simplification of the Capital Goods Scheme
• HMRC: VAT guide — VAT Notice 700