Policy paper

Simplification of the Capital Goods Scheme

Published 8 July 2026

Who is likely to be affected

This measure affects VAT-registered businesses that incur VAT on capital expenditure on the following, from 29 July 2026:

• land, buildings and civil engineering works
• a computer or an item of computer equipment

General description of the measure

VAT incurred on expenditure on certain capital assets must be recovered in accordance with the Capital Goods Scheme (CGS).

Assets currently covered by the scheme include the following:

• a computer or item of computer equipment if the capital expenditure is £50,000 or more
• land, buildings and civil engineering works if the capital expenditure is £250,000 or more

This simplification will introduce 2 significant changes to the scheme. From 29 July 2026, the following changes to the scheme will take effect:

• computers and items of computer equipment will be removed from the list of assets covered by the scheme. The CGS will no longer apply to capital expenditure on computers and items of computer equipment
• the expenditure threshold for land, buildings and civil engineering work will increase from its current value of £250,000 (exclusive of VAT), to £600,000 (exclusive of VAT). 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

Policy objective

This measure aims to simplify the administration of the VAT system and to reduce the administrative burden on small businesses who have been subject to complex and time-consuming CGS calculations.

The threshold for land, buildings and civil engineering works under the CGS has remained unchanged since the scheme was introduced in 1990. As property values have risen, an increasing number of small businesses have acquired smaller properties and refurbishment services which are subject to the complex requirements of the scheme.

The threshold has been increased to take into account the growth in property values since the scheme was first introduced. Increasing the threshold will reduce the number of assets covered by the CGS. As a result, many businesses, mainly small businesses, will no longer have assets falling within the scheme and will no longer be subject to the complex CGS requirements, thus easing the administrative burden on smaller businesses.

The computer category has become redundant and the threshold is very rarely triggered as the value of a single computer has decreased considerably since the scheme was introduced.

Background to the measure

At Spring Statement 2019, the government announced it would launch a Call for Evidence (CfE) exploring ways to simplify the operation of the CGS, following the findings of the 2017 Office of Tax Simplification (OTS) VAT review.

A CfE was launched in July 2019, inviting views from a range of stakeholders on potential simplification reforms to the CGS. The CfE was intended to gather views and evidence on some options for reform which included changes to the CGS thresholds for land and property and the removal of computers from the scheme. It also considered the administration and scope of the CGS.

In March 2021, the government published a summary of the responses received from stakeholders including businesses, trade associations and accountancy firms. Most respondents welcomed the simplification of the scheme and were generally supportive of some of the options for reform, including an increase to the threshold for land and property.

In response to the comments received to the CfE, as part of the next steps, there was a commitment by the government to review the responses and process changes which could be made in the future.

On 28 April 2025, on the Tax Update: Simplification, Administration and Reform day, the government announced that to simplify the CGS, secondary legislation will be laid to remove computers from the assets covered by the scheme and increase the capital expenditure value of land, buildings and civil engineering work, currently set at £250,000 (exclusive of VAT), to £600,000 (exclusive of VAT).

Detailed proposal

Operative date

This measure will come into force on 29 July 2026.

Where an owner has incurred capital expenditure on land, buildings, civil engineering works or computers and computer equipment in respect of supplies of goods or services received, goods imported or goods acquired from a member state before 29 July 2026, the changes made by this measure will not apply. 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 in respect of supplies of goods or services received, goods imported or goods acquired from a member state before 29 July 2026.

Current law

Current law is included in Part XV of the VAT Regulations 1995 (SI 1995/2518) — regulations 112 to 116, which define the scope of the CGS and the period and method of adjustment required.

Proposed revisions

Regulation 113(2) has been amended to remove the reference to ‘a computer or an item of computer equipment’ from the categories covered by the scheme. Any references to a computer or an item of computer equipment have also been removed from other provisions in Part XV.

Regulation 113(4) has also been amended to increase the threshold value from £250,000 to £600,000 for land, buildings and civil engineering works. Consequential amendments have been made to regulations 113A and 114.

Summary of impacts

Exchequer impact (£ million)

2024 to 2025	2025 to 2026	2026 to 2027	2027 to 2028	2028 to 2029	2029 to 2030
—	negligible	negligible	negligible	negligible	negligible

This measure is expected to have a negligible impact on the Exchequer.

Macroeconomic impact

This measure is not expected to have any significant macroeconomic impacts.

Impact on individuals, households and families

There is no impact on individuals as this measure only affects VAT-registered businesses.

The measure is not expected to impact on family formation, stability or breakdown.

Equalities impacts

It is not anticipated that there will be any impact on those in groups sharing protected characteristics as this measure will only affect businesses who acquire land and buildings for their business use.

Administrative impact on business including civil society organisations

This measure will have a significant impact on reducing business costs by removing a redundant category from the CGS and raising the threshold for when the CGS will apply to land, buildings and civil engineering works. One-off costs might include familiarisation with the change. However, these will be outweighed by significant, continuing, administrative burden savings for businesses — particularly small businesses — that will no longer have capital assets falling within the CGS and therefore do not need to perform the complex adjustments calculations required. There are not expected to be any ongoing costs.

Accordingly, this measure is expected overall to improve businesses’ experience of dealing with HMRC.

This measure will only affect VAT-registered businesses and therefore is not anticipated to impact civil society organisations.

One-off impact	(£ million)
Costs	negligible
Savings	negligible

Continuing average annual impact	(£ million)
Costs	negligible
Savings	0.6
Net impact on annual administrative burden	-0.6

Operational impact (£ million) (HMRC or other)

No operational or delivery impacts for HMRC have been identified.

Other impacts

Other impacts have been considered and none have been identified.

Monitoring and evaluation

The measure will be kept under review through communication with affected stakeholder groups.

Further advice

If you have any questions about this change, please contact Bilal Hussain at HMRC, on Telephone: 03000 584 329 or email: bilal.hussain1@hmrc.gov.uk.

Declaration

Daniel Tomlinson MP, Exchequer Secretary to the Treasury has read this tax information and impact note and is satisfied that, given the available evidence, it represents a reasonable view of the likely costs, benefits and impacts of the measure.