Business tax – guidance

VAT: Capital Goods Scheme and capital assets

Use the Capital Goods Scheme if you reclaim VAT on expensive land, property or computer equipment.


If you acquire or create an expensive capital asset, or already have one when you register for VAT, you may have to adjust the amount of VAT you reclaim. You do this by using the Capital Goods Scheme, which allows you to spread the initial VAT claimed over a number of years. You can reclaim more if the proportion of your taxable supplies increases, you’ll have to repay some if it decreases. Taxable supplies are the sales that you make which are standard, reduced or zero-rated.

Assets included in the Capital Goods Scheme

The assets that are included in the scheme are:

  • land, buildings and civil engineering work
  • computers and computer equipment
  • aircraft, ships, boats or other vessels

If your asset is used only for making taxable supplies, you can reclaim all of the VAT you’ve paid. If you use the asset partly for business and partly for making exempt or non-business supplies, you can only reclaim a proportion. You do this by using your partial exemption and non-business calculations.

Land, buildings and civil engineering work

You’ll have to use the Capital Goods Scheme if you spend £250,000 (excluding VAT) or more on:

  • buying land, a building or part of a building or civil engineering work
  • constructing a building or civil engineering work
  • refurbishing, fitting out, altering or extending a building or civil engineering work

Civil engineering work includes things like roads, bridges, golf courses, running tracks and the installation of pipes for connecting to mains services.

Computers and computer equipment

The scheme only applies to individual computers, or items of computer equipment, that cost £50,000 (excluding VAT) or more. It doesn’t cover something like a network where the total cost of the server and all the computers and printers is £50,000 or more but each individual item is less than £50,000. Nor does it cover computerised equipment (for example, a computerised telephone exchange or computer-controlled blast furnace) or computer software.

Aircraft, ships, boats and other vessels

The scheme applies if you spend £50,000 or more (excluding VAT) on purchasing, constructing, refurbishing, fitting out, altering or extending an aircraft, ship, boat or other vessel.

How to work out the value of assets

You’ll need to know what to take into account to calculate the value of an asset so that you can:

  • decide whether it should be included in the scheme
  • work out any adjustment to the amount of VAT that you reclaimed

Assets not covered by the scheme

The scheme doesn’t apply if:

  • you acquire assets just for resale
  • you spend money on assets that you acquired just for resale
  • you acquire assets, or spend money on assets that you only use for non-business purposes

Capital Goods Scheme adjustments

The VAT you can reclaim on an asset depends on the extent you use it to make taxable supplies during the adjustment period. If your use of the asset varies over the years you’ll have to adjust the amount of VAT you initially reclaimed. The adjustment period is made up of ‘intervals’ and the number of intervals depends on the type of asset.

Changes in your business circumstances

Certain changes to your business during a Capital Goods Scheme period will impact on the treatment of your capital assets. These changes include:

  • leaving or joining a VAT group
  • cancelling your VAT registration
  • buying or selling your business
  • selling an asset during the adjustment period
  • your business moving into or out of a VAT group

You can find more information about the action you’ll need to take in these circumstances in Notice 706/2.