Capital Goods Scheme VAT Rules Simplified: New £600,000 Property Threshold and Computer Exclusion

The Capital Goods Scheme is one of the less visible parts of VAT, but it can create years of record-keeping after a major purchase. The latest reform narrows its reach and increases the property threshold to reflect modern investment costs. The two headline changes, a £600,000 property threshold and the removal of computers from the scheme, sound narrow but reshape how finance teams plan large capital projects.

How the scheme works

When a business claims input VAT on a major asset, the original recovery may be adjusted over a monitoring period if the balance between taxable and exempt use changes. Property adjustments commonly continue for ten intervals.

Why computers are being removed

Technology cycles are shorter and equipment can become obsolete well before a long adjustment period ends. Removing computers reduces administration where the compliance burden may be disproportionate to revenue protection.

The £600,000 property threshold

Raising the threshold means smaller refurbishments and acquisitions are less likely to enter the scheme. Businesses still need to aggregate costs correctly and determine whether connected works form one capital item.

Who may benefit

Partly exempt businesses, charities, education bodies, financial firms and property operators often face the most complex calculations. Fewer qualifying assets can reduce annual reviews, but the underlying rules on input tax and business use remain.

Transitional and record-keeping issues

The effective date applies to when relevant expenditure is first incurred, so invoices, contracts and project phases matter. Existing capital items do not simply disappear from historical adjustment schedules.

What businesses should do now

Finance teams should update fixed-asset registers, VAT manuals and software rules, then review projects spanning the commencement date. The measure is simplification, not permission to claim VAT where ordinary deduction rules do not allow it.

What happens next

Tax outcomes depend on facts and transitional rules. Present as general information and recommend current HMRC guidance or professional advice. Projects spanning the commencement date are where mistakes are most likely, since the old and new thresholds can both be in play.