VAT update: Date announced for the Capital Goods Scheme threshold to rise to £600,000

HMRC has confirmed changes to the VAT Capital Goods Scheme (CGS), aimed at simplifying compliance for VAT-registered businesses with capital expenditure on property and certain other assets.

From 29 July 2026, the CGS threshold for land, buildings and civil engineering works will increase from £250,000 to £600,000, exclusive of VAT. This means that, going forward, the scheme will only apply to qualifying property-related capital expenditure of £600,000 or more.

The change should reduce the administrative burden for many smaller businesses and property projects that would previously have fallen within the scheme. Where the CGS applies, businesses are required to monitor VAT recovery over a number of years and make adjustments if the taxable use of the asset changes.

HMRC has also confirmed that computers and items of computer equipment will be removed from the CGS from the same date. This means that the CGS will now only apply to land, buildings and civil engineering works, where the capital expenditure on these assets is £600,000 or more.

The changes are not retrospective. The new threshold value and the removal of computers from the scheme will only apply where an owner has not incurred any capital expenditure on the item before 29 July 2026. Where capital expenditure has already been incurred before 29 July 2026, the existing CGS rules continue to apply. Therefore assets potentially impacted by these changes will be determined by when relevant VATable expenditure is first incurred, not the date when the asset is brought into use.

This means businesses currently managing CGS items must continue to undertake adjustments for those existing assets, even if the expenditure would fall below the new £600,000 threshold.

Businesses planning significant property purchases, refurbishments or developments should review the timing and VAT treatment of their expenditure, particularly where projects are close to the new threshold or span the implementation date. Projects with qualifying costs between the old threshold of £250,000 and the new threshold of £600,000 may no longer be subject to CGS monitoring if expenditure is first incurred on or after 29 July 2026, potentially reducing long-term VAT compliance obligations.

If you have any questions about VAT, please contact our team: vat@ct.me.