The UK government has announced landmark changes to the VAT Capital Goods Scheme (CGS), effective from 28 April 2025. Two major reforms have been introduced to simplify VAT compliance: the threshold for land and buildings will increase from £250,000 to £600,000, and computers will be entirely removed from the scheme. These changes are designed to reduce administrative complexity for businesses and provide greater clarity around VAT recovery rules.
Understanding the VAT Capital Goods Scheme
The VAT Capital Goods Scheme adjusts the amount of input VAT that can be reclaimed on high-value capital assets over a specified adjustment period. It ensures that the VAT recovery accurately reflects the use of the asset in taxable versus exempt business supplies over time. This affects businesses that invest in land and buildings, computer equipment, and certain aircraft, ships, and other capital items.
Adjustment Periods
- Land and buildings: 10 years
- Other assets (e.g., plant and machinery): 5 years
During the adjustment period, if the use of the asset changes (for example, from taxable to exempt purposes), the business may need to adjust the amount of VAT originally recovered.
Key Changes from April 2025
1. Increase in Threshold for Land and Buildings
Effective 28 April 2025, the threshold for land and buildings under the CGS will increase from £250,000 to £600,000 (VAT-exclusive). This significant rise aims to simplify compliance and administrative effort for businesses making lower-value property investments.
Only land and buildings with a VAT-exclusive cost of £600,000 or more will now fall within the CGS. This impacts both new developments and refurbishment projects where input tax is claimed.
2. Removal of Computers from the CGS
From the same date, computer equipment will no longer be subject to the CGS, regardless of value. Businesses will no longer need to monitor the use of computers over a five-year period or apply annual VAT adjustments based on changes in taxable or exempt use. This change recognises the rapidly depreciating nature and widespread use of technology assets.
Impact on UK Businesses
Reduced Record-Keeping and Fewer Adjustments
The threshold increase means fewer businesses will be required to account for capital goods adjustments on property investments. This change is particularly beneficial for small and medium-sized enterprises (SMEs) involved in refurbishments or moderately sized property transactions.
Similarly, the removal of computers from the CGS eliminates the need for ongoing VAT tracking and reporting for these common assets.
Compliance Checklist for April 2025 and Beyond
- Review upcoming property purchases or refurbishments planned for 2025 to determine whether the £600,000 threshold applies.
- Close CGS compliance activity for computer equipment purchased before 28 April 2025 under the old rules.
- Update internal VAT compliance procedures to reflect the revised thresholds and asset types.
- Document changes to asset tracking policies, especially for technology investments no longer requiring CGS treatment.
Practical Example
Example: A VAT-registered marketing agency refurbishes an office in 2024 for £260,000 (VAT exclusive) and reclaims input VAT based on 80% taxable use. Under pre-April 2025 rules, the property falls within the CGS and will require annual adjustments for 10 years. However, had the same refurbishment occurred in May 2025, it would fall below the new £600,000 threshold and be excluded from the CGS, provided no other funding thresholds are breached. This represents a significant reduction in post-investment compliance time and costs.
Interaction with EU VAT Rules
While the UK’s VAT Capital Goods Scheme diverges in threshold values and scope post-Brexit, similar principles still apply in the EU, governed by Articles 187–190 of the EU VAT Directive (2006/112/EC). EU member states typically define their own asset value thresholds and adjustment periods; however, most closely mirror the VAT treatment of land and high-value assets. Businesses operating cross-border should consider both local and EU requirements when allocating input VAT across multi-jurisdictional assets.
Next Steps for VAT-Registered Businesses
To prepare for the April 2025 changes, businesses should:
- Evaluate current and upcoming capital investments to determine whether they’ll fall within or outside the revised CGS scope.
- Amend VAT accounting software and internal workflows to capture new threshold rules.
- Train finance and tax teams to understand the new simplifications and how they apply in real-world situations.
- Consult with a VAT advisor to assess the impact on past, current, and future VAT recovery calculations.
Further Information
Full technical guidance and updates on the Capital Goods Scheme and VAT thresholds can be found on the official HMRC website:
These changes are a welcomed move towards streamlined compliance and improved clarity for dynamic UK businesses investing in infrastructure and technology.
