The Capital Goods Scheme Just Got Simpler — Here's What Changes on 29 July
Computers are leaving the scheme entirely, and the property threshold jumps from £250,000 to £600,000 — the first move since the scheme began in 1990. Here's exactly what's happening and what to check before it lands.
For 35 years, the Capital Goods Scheme's £250,000 threshold for land, buildings and civil engineering works never moved — not once, even as property values climbed year after year. That finally changes on 29 July 2026, when new regulations more than double the threshold and remove computers from the scheme entirely.
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What Is the Capital Goods Scheme?
The Capital Goods Scheme (CGS) is the HMRC mechanism that governs how VAT-registered businesses recover input VAT on high-value capital items. Rather than reclaiming VAT once and moving on, businesses using an asset for a mix of taxable and exempt purposes must adjust their VAT recovery over an "adjustment period" — ten years for land, buildings and civil engineering works, five years for other qualifying assets — to reflect how the asset's use changes over time. Full technical detail sits in VAT Notice 706/2.
What's Changing from 29 July 2026
Two changes take effect under the Value Added Tax (Amendment) Regulations 2026 (SI 2026/765):
Wider Scope
Narrower Scope
| Asset Category | Before 29 July 2026 | From 29 July 2026 |
|---|---|---|
| Computers & computer equipment | ≥ £50,000 | Removed from scheme |
| Land, buildings & civil engineering works | ≥ £250,000 | ≥ £600,000 |
| Ships, aircraft & boats | ≥ £50,000 | Unchanged for now |
Both figures are exclusive of VAT. HMRC first flagged these changes as part of its Spring 2025 tax simplification package, but it's only in the last few weeks that the commencement date and final threshold were confirmed.
Transitional Rule: Projects Already Underway
If capital expenditure on a qualifying asset was incurred before 29 July 2026, the existing £250,000 threshold continues to apply to that asset for the rest of its adjustment period. The £600,000 threshold applies only to expenditure incurred on or after that date — getting this wrong can affect a VAT position for up to ten years.
Who Does This Affect?
Partially Exempt Businesses
Landlords and firms with property assets under £600,000 making a mix of taxable and exempt supplies.
Tech-Heavy SMEs
No more CGS tracking on major IT hardware purchases, regardless of value.
Property & Construction
Projects between £250,000–£600,000 fall outside the scheme entirely.
What Your Business Should Do Now
Review Current CGS Items
Identify which existing capital assets are inside the scheme today, and check whether the new threshold takes them out of scope.
Check the Timing of Planned Spend
If a property project sits between £250,000–£600,000, the date expenditure is incurred could determine whether CGS applies.
Stop Tracking Computers Under CGS
From 29 July 2026, new computer purchases no longer need monitoring under the scheme.
Update Your Partial Exemption Workflow
Fewer CGS items means a simpler annual adjustment process — make sure your bookkeeping reflects it.
Frequently Asked Questions
What is the Capital Goods Scheme (CGS)?
It's HMRC's mechanism for adjusting input VAT recovery on high-value capital items — land, buildings, civil engineering works, and (until 29 July 2026) computers — over a multi-year adjustment period, to reflect changing business use.
When does the reform take effect?
29 July 2026, under the Value Added Tax (Amendment) Regulations 2026 (SI 2026/765).
Does the £600,000 threshold apply to projects already underway?
No — expenditure incurred before 29 July 2026 stays under the existing £250,000 threshold. The new threshold applies only to expenditure incurred from that date onward.
Why is HMRC making this change?
It's part of the government's ongoing tax simplification agenda, first announced in April 2025, aimed at cutting the administrative burden on small and medium-sized businesses.
How Accounting Crunchers Can Help
VAT simplification is welcome, but it still needs to be applied correctly to your specific assets and timeline. Our team reviews your existing Capital Goods Scheme items, checks which fall out of scope under the new rules, and keeps your VAT partial exemption method accurate from day one.
VAT & CGS Review
We identify exactly which assets are affected by the new thresholds.
Partial Exemption Support
We keep your annual adjustment calculations accurate as the scheme narrows.
Ongoing Compliance Monitoring
HMRC and Companies House updates tracked continuously, applied to your setup ahead of time.
UK, US & UAE Coverage
One team keeping every entity compliant, wherever you operate.
We support businesses across the UK, US, and UAE — from sole traders to growing SMEs — with a team trained across Big 4 standards. Accounting Crunchers keeps you up to date on every HMRC and Companies House change, so your business is never caught off guard.
Not Sure If the CGS Changes Affect Your Business?
Talk to Accounting Crunchers before 29 July 2026 and get clarity on your VAT position.
Book a Free Consultation Email UsReference: HMRC, Capital Goods Scheme (VAT Notice 706/2) — gov.uk/guidance/capital-goods-scheme-notice-7062
This article is for general information only and is not a substitute for professional VAT advice specific to your business.