If your business incurs VAT on capital expenditure such as property, computers, or computer equipment, HMRC is making some welcome changes to the Capital Goods Scheme (CGS) that should ease the administrative burden for many smaller businesses.

What is the Capital Goods Scheme?

The CGS requires businesses to adjust the VAT they've reclaimed on certain capital assets over several years, based on how those assets are used. It currently applies to:

• computers or computer equipment where capital expenditure is £50,000 or more
• land, buildings and civil engineering works where capital expenditure is     £250,000 or more

What's changing

From 29 July 2026, two significant changes take effect:

Computers are being removed from the scheme entirely. Capital expenditure on computers and computer equipment will no longer fall within the CGS at all, regardless of value.

The threshold for land, buildings and civil engineering works is rising from £250,000 to £600,000 (exclusive of VAT). The CGS will only apply to these assets where capital expenditure reaches £600,000 or more.

Why the change?

The £250,000 threshold for property has stayed the same since the scheme began in 1990. Property values have risen substantially since then, meaning more and more smaller businesses have found themselves caught by the scheme simply because of that increase, rather than because of the scale of their operations. Raising the threshold brings it back in line with today's property values and takes many smaller businesses out of scope altogether.

Similarly, the cost of computer equipment has fallen so much since 1990 that the computer category rarely applied in practice - so removing it altogether simply reflects reality and removes an unnecessary layer of complexity.

What this means for you

If you've previously had assets falling within the CGS due to property or computer expenditure, it's worth reviewing your position ahead of 29 July 2026. Many businesses (particularly smaller ones) will find they no longer need to carry out the complex ongoing CGS adjustment calculations, which should be a welcome reduction in administrative work.

If you're unsure whether this affects you, or would like us to review your current CGS position in light of these changes, please get in touch with the team. We're happy to talk through what this means for your business.

_{This is published for the information of clients. It provides only an overview of the regulations in force at the date of publication, and no action should be taken without consulting the detailed legislation or seeking professional advice. Therefore, no responsibility for loss occasioned by any person acting or refraining from action as a result of the material contained in this publication can be accepted by the authors or the firm.}