The Capital Goods Scheme — the VAT rule that follows an expensive asset around for years after the invoice is paid — is about to get a great deal smaller. From 29 July 2026, computers and computer equipment leave the scheme altogether, and the threshold for land, buildings and civil engineering works rises from £250,000 to £600,000 excluding VAT. As chartered certified accountants in Surrey advising VAT-registered businesses across the UK, here is what the reform changes, what it leaves untouched, and what you should do about it now.
What Is the Capital Goods Scheme — and Why It Matters
The Capital Goods Scheme (CGS) is a VAT adjustment mechanism for expensive, long-life assets. Rather than fixing your VAT recovery in the quarter you buy the asset, the CGS makes you revisit it across an adjustment period — five intervals for computer equipment and ten for land and buildings — and adjust the VAT you originally claimed if the way you use the asset changes. It bites hardest on partly exempt businesses, property investors and anyone whose taxable-to-exempt use shifts over time. Our earlier guide to the Capital Goods Scheme explains the mechanics in more detail.
What Changes From 29 July 2026
Two changes take effect, given legal force by the Value Added Tax (Amendment) Regulations 2026 (SI 2026/765):
- Computers and computer equipment leave the scheme. Capital expenditure on computers and items of computer equipment will no longer be a capital item at all. No five-interval adjustment, no CGS register entry, no annual recalculation.
- The property threshold rises to £600,000. The CGS will only apply to land, buildings and civil engineering works where the capital expenditure is £600,000 or more, exclusive of VAT — up from the long-standing £250,000 limit.
The government’s stated aim is simplification: to reduce the administrative burden on smaller businesses that have been carrying complex, time-consuming CGS calculations for assets that, in cash terms, were never especially significant. In practice, far fewer assets will now need the five or ten-year VAT-recovery adjustment.
The Transitional Rule — Existing Capital Items Keep Running
This is the point most commonly misunderstood, and the one that causes errors. The new rules apply only to expenditure incurred on or after 29 July 2026. Anything already inside the scheme stays inside the scheme and runs its full adjustment period to the end.
So a server bought in 2024 remains a capital item until its five intervals are exhausted, even though computers are no longer in the scheme. A £300,000 office refurbishment completed in 2025 remains a capital item for its full ten intervals, even though it now sits well below the new £600,000 threshold. You do not get to switch off an existing CGS item simply because a new asset of the same kind would fall outside the rules.
Who Benefits — and Who Should Still Pay Attention
The clearest winners are businesses with material IT spend and no property in the scheme: their CGS obligations may disappear entirely for new expenditure. Owner-managed companies and smaller partly exempt businesses that were tripped into the scheme by mid-sized property works will also see meaningful relief, as the £250,000-to-£600,000 band drops out for new spend.
Attention is still needed where a business is partly exempt, where a property project sits close to the £600,000 line, or where an option to tax changes the VAT profile of a building mid-adjustment. And every business with existing capital items must keep its CGS register alive until those items run out.
What VAT-Registered Businesses Should Do Now
- Review the timing of planned expenditure. For property works and large IT purchases scheduled around July 2026, the date the expenditure is incurred determines the regime that applies for up to ten years. That is a decision worth taking deliberately rather than by accident.
- Audit your CGS register. Separate items that must keep running under the transitional rule from spend that will fall outside the scheme from 29 July 2026.
- Drop computers from CGS tracking — prospectively only. New computer expenditure needs no CGS entry. Historic computer capital items still do.
- Model the £600,000 line on property projects. Phasing, scope and what counts as capital expenditure on the works all affect which side of the threshold a project lands on.
- Keep your evidence. Simplification does not reduce the standard of record-keeping HMRC expects on the items that remain.
Frequently Asked Questions
Does the Capital Goods Scheme still apply to computers bought before 29 July 2026
Yes. Computer capital items already in the scheme continue through their full five-interval adjustment period. Only expenditure incurred on or after 29 July 2026 falls outside the scheme.
Is the new £600,000 threshold inclusive of VAT
No. The £600,000 threshold for land, buildings and civil engineering works is exclusive of VAT.
What happens to property expenditure of, say, £400,000 incurred after 29 July 2026
It falls below the new threshold and is not a capital item, so no CGS adjustment period applies. The same £400,000 spent before 29 July 2026 would have been caught, and would continue to run.
Do the changes affect input VAT recovery in the quarter of purchase
No. Normal partial exemption and input tax recovery rules still determine your initial claim. The reform only changes whether that claim must be revisited over an adjustment period.
How TaxDigit Can Help
The CGS sits at the intersection of VAT, partial exemption and property — exactly the territory where a small timing decision has a ten-year consequence. Our Guildford-based team reviews CGS registers, models the £600,000 threshold against planned works, and advises on the timing of expenditure either side of 29 July 2026. Our VAT specialists handle the compliance, while our tax advisory and planning service builds the reform into your wider capital expenditure strategy. The legislation itself is available as the Value Added Tax (Amendment) Regulations 2026.
Plan Ahead With TaxDigit
The reform takes effect on 29 July 2026 — which means the planning window is now, not later. If you are budgeting property works or a significant IT investment, a short conversation before you commit the spend can be worth a decade of avoided adjustments. As premier accountants in Surrey serving clients across the UK, TaxDigit will help you get the timing and the treatment right. Call 01483 230 777, email info@taxdigit.co.uk, or visit our contact page for bespoke advice.