HMRC have confirmed simplification changes to the Capital Goods Scheme (CGS) will take effect on 29 July 2026. Computers will be removed from the scheme, while the threshold for land, buildings and civil engineering works will increase from £250,000 to £600,000.
The changes follow a 2019 Call for Evidence on simplifying the Capital Goods Scheme (CGS), launched in response to recommendations from the Office of Tax Simplification VAT review.
- Most respondents supported simplification measures, including increasing the property threshold.
The government announced its intention to implement these reforms on 28 April 2025 as part of its Tax Update: Simplification, Administration and Reform programme.
What is changing?
The CGS requires businesses to adjust VAT recovery over several years where certain high-value capital assets are used to make both taxable and exempt supplies.
From 29 July 2026:
- Computers and computer equipment will be removed entirely from the CGS.
- The CGS threshold for land, buildings and civil engineering works will increase from £250,000 to £600,000, exclusive of VAT.
As a result, the scheme will apply only to land, buildings and civil engineering works with capital expenditure of £600,000 or more.
Why is the scheme being changed?
HMRC say the reforms are intended to simplify VAT administration and reduce compliance burdens, particularly for smaller businesses.
The £250,000 property threshold has remained unchanged since the CGS was introduced in 1990.
- HMRC note that rising property values have brought an increasing number of smaller property transactions and refurbishments within the scheme, creating administrative complexity for affected businesses.
HMRC also consider the computer category to be largely redundant because the £50,000 threshold is now rarely reached for individual items of computer equipment.
When do the changes apply?
The new rules take effect from 29 July 2026.
- The changes will not apply when capital expenditure on the relevant asset was incurred before that date.
- Existing CGS assets will continue to follow the Current rules and adjustment periods.
Administrative impact
HMRC expect the changes to reduce ongoing administrative burdens for businesses by removing a redundant asset category and reducing the number of property-related assets caught by the scheme.
- The measure is expected to generate annual administrative savings of around £0.6 million across affected businesses.
Useful guides on this topic
Capital Goods Scheme
What is the VAT Capital Goods Scheme (CGS)? When do I use it? How does it work?
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