Government finally confirms date for capital goods scheme reforms

The CGS requires businesses to adjust the amount of VAT recovered on certain capital assets where their taxable use changes over a number of years. The rules currently apply to land, buildings and civil engineering works costing £250,000 or more, and to computers and computer equipment costing £50,000 or more. From 29 July 2026, two significant changes will be introduced. Computers and computer equipment will be removed from the scheme altogether, while the expenditure threshold for land, buildings and civil engineering works will increase from £250,000 to £600,000.

The changes are intended to reduce the administrative burden of the CGS, particularly for smaller businesses. The government noted that the existing property threshold has remained unchanged since the scheme was introduced in 1990, meaning increasing property values have brought many more businesses within its scope than originally intended.

The reforms will apply only where capital expenditure is first incurred on or after 29 July 2026. Existing assets already within the CGS will continue to be subject to the current adjustment rules until the end of their adjustment period.

For businesses planning significant capital expenditure, the announcement finally provides certainty after several years of consultation and policy development. Projects beginning before and after 29 July may fall under different CGS rules, making the timing of expenditure an important consideration.