HMRC has outlined plans to simplify the Capital Goods Scheme from 29 July 2026 by removing computers from its scope and raising the expenditure threshold for land, buildings and civil engineering works, reducing VAT compliance requirements for many VAT-registered businesses.
The UK’s HM Revenue & Customs (HMRC) has published a policy paper on the Simplification of the Capital Goods Scheme on 8 July 2026. This measure details the simplification of the Capital Goods Scheme to reduce the administrative burden for VAT-registered businesses.
General description of the measure
VAT incurred on expenditure on certain capital assets must be recovered in accordance with the Capital Goods Scheme (CGS).
Assets currently covered by the scheme include the following:
- A computer or item of computer equipment if the capital expenditure is GBP 50,000 or more
- Land, buildings and civil engineering works if the capital expenditure is GBP 250,000 or more
This simplification will introduce two significant changes to the scheme. From 29 July 2026, the following changes to the scheme will take effect:
- Computers and items of computer equipment will be removed from the list of assets covered by the scheme. The CGS will no longer apply to capital expenditure on computers and items of computer equipment
- The expenditure threshold for land, buildings and civil engineering work will increase from its current value of GBP 250,000 (exclusive of VAT), to GBP 600,000 (exclusive of VAT). This means that the CGS will now only apply to land, buildings and civil engineering works, where the capital expenditure on these assets is GBP 600,000 or more
Policy objective
This measure aims to simplify the administration of the VAT system and to reduce the administrative burden on small businesses who have been subject to complex and time-consuming CGS calculations.
The threshold for land, buildings and civil engineering works under the CGS has remained unchanged since the scheme was introduced in 1990. As property values have risen, an increasing number of small businesses have acquired smaller properties and refurbishment services which are subject to the complex requirements of the scheme.
The threshold has been increased to take into account the growth in property values since the scheme was first introduced. Increasing the threshold will reduce the number of assets covered by the CGS. As a result, many businesses, mainly small businesses, will no longer have assets falling within the scheme and will no longer be subject to the complex CGS requirements, thus easing the administrative burden on smaller businesses.
The computer category has become redundant and the threshold is very rarely triggered as the value of a single computer has decreased considerably since the scheme was introduced.
This measure will come into force on 29 July 2026.
