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HMRC internal manual

Capital Allowances Manual

From
HM Revenue & Customs
Updated
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General: Definitions: Additional VAT

CAA01/S546 - S551

The VAT payable on an asset is usually determined by the first use of that asset. The VAT Capital Goods Scheme adjusts the VAT due in some circumstances if the use of an asset changes. If the use of an asset is taxable the VAT input tax on it may be reclaimed. If the use is exempt it may not.

If the mix of use of an asset changes, for VAT purposes, from exempt to taxable a further amount (called an additional VAT rebate is payable to the taxpayer because more of the input tax may be reclaimed. If the mix of use of the assets changes, for VAT purposes, from taxable to exempt a further amount (called an additional VAT liability) is payable by the taxpayer because too much input tax has been reclaimed.

The VAT Capital Goods scheme applies to computers and computer equipment worth £50,000 or more and to land and buildings worth £250,000 or more. It covers changes of use within:

  • 5 years of first use for computers and computer equipment, and
  • 10 years of first use for land and buildings.

 

Since the only assets affected by the Capital Goods Scheme are computers and buildings, the allowances most likely to be affected by it are IBA, plant and machinery allowances and research and development allowance.

The relevant VAT interval is the period that is used to make the computation that gives rise to the additional VAT liability or the additional VAT rebate.

The chargeable period for which an additional VAT liability or rebate is to be taken into account for allowances and charges is shown by the following table.

### Situation ### Chargeable period in which additional VAT liability is incurred or rebate arises
   
VAT liability or rebate included in a VAT return Period which includes the last day of the VAT return period
VAT assessment made Period which includes the date on which the VAT assessment is made
An additional VAT liability or rebate has not been included in a VAT return or assessed before the trade is treated as permanently discontinued for tax purposes Period which includes the date on which the trade is treated as permanently discontinued.