From 29 July 2026 the VAT Capital Goods Scheme no longer applies to computers, and the threshold for land, buildings and civil engineering work rises from £250,000 to £600,000 excluding VAT. Property purchases that sit between the old and new figures now fall out of the scheme entirely.
The change was made by The Value Added Tax (Amendment) Regulations 2026, SI 2026/765, made on 7 July 2026 and in force from 29 July 2026. It amends Part 15 of the VAT Regulations 1995, the part that runs the Capital Goods Scheme. It is the biggest reform of the scheme since it began in 1990, and most owner-managed businesses have not noticed, partly because HMRC's own published guidance still shows the old figures. There is also a transitional rule that several accountancy firms have summarised incorrectly, and getting it wrong puts the wrong assets in and out of the scheme.
What is the VAT Capital Goods Scheme and why does it exist?
The Capital Goods Scheme is an adjustment mechanism. When you buy a large capital asset you recover input VAT based on how you intend to use it in year one, but a building can be used for decades and its mix of taxable and exempt use can drift a long way from that first-year intention. Rather than let a single snapshot fix VAT recovery forever, the scheme spreads recovery over an adjustment period and makes you recalculate each year. If taxable use rises, you claim more back. If it falls, you pay some back.
Who does it actually bite on?
Mainly partially exempt businesses: those making a mix of taxable and exempt supplies. Think landlords with opted and unopted property, care and education providers, insurance intermediaries, financial services firms and charities with trading arms. A fully taxable business has far less to adjust, though it can still be dragged in if its use profile changes.
How long is the adjustment period?
Ten intervals for land and buildings. The old computer category ran for five. Ten intervals means ten annual recalculations and ten sets of records, which is why falling out of the scheme is genuinely valuable to a smaller business.
What exactly changed on 29 July 2026?
Two things, both in regulation 113 of the VAT Regulations 1995 as amended by SI 2026/765.
- Computers and computer equipment are removed from the list of capital items entirely. Regulation 113(2)(d) is omitted. The old £50,000 excluding VAT computer threshold no longer applies to anything.
- The land, buildings and civil engineering works threshold rises from £250,000 to £600,000 excluding VAT. This is in regulation 113(4)(a).
Why did HMRC drop computers?
Because the threshold had been overtaken by reality. The scheme was designed in 1990, when £50,000 of computer equipment was a serious corporate purchase. Equipment costs have fallen so far since then that the category is almost never triggered. Removing it is a simplification, not a giveaway.
Old versus new: what are the Capital Goods Scheme thresholds now?
| Capital item category | Position before 29 July 2026 | Position from 29 July 2026 |
|---|---|---|
| Computers and computer equipment | In scheme above £50,000 excluding VAT | Excluded entirely (reg 113(2)(d) omitted) |
| Land, buildings and civil engineering works | In scheme above £250,000 excluding VAT | In scheme above £600,000 excluding VAT |
| Adjustment period, land and buildings | 10 intervals | 10 intervals (unchanged) |
| Adjustment period, computers | 5 intervals | Not applicable, category removed |
Those are the only two changes SI 2026/765 makes to the list of capital items. The other categories in regulation 113, including aircraft, ships, boats and other vessels, are untouched and continue on their existing thresholds and adjustment periods.
Does the change apply if I signed the contract before 29 July 2026?
This is where the published commentary has gone wrong, so read the actual wording.
Regulation 1(3) of SI 2026/765 says the amendments have no effect on a capital item where the owner incurred relevant expenditure on:
- goods or services supplied to the owner before 29 July 2026;
- goods imported before 29 July 2026; or
- goods acquired from a member State before 29 July 2026.
The test is the supply, import or acquisition date, not the date the contract was signed. Several accountancy firms' summaries say the old rules continue where expenditure was "committed under contract" before 29 July 2026. That is not what the regulation says, and it points the wrong way in exactly the cases where it matters.
Why does the distinction matter in practice?
Take a building contract signed in June 2026 where the supply actually takes place in September 2026. On the contract-date reading you would treat it as grandfathered under the old £250,000 threshold and set up a ten-year adjustment period. On the correct statutory reading the supply lands after 29 July 2026, so the new £600,000 threshold applies and, if the value is under £600,000, there is no capital item at all.
That is the opposite outcome. One version gives you a decade of annual adjustments HMRC does not require; the other gives you a clean recovery position. On staged developments where supplies are made over many months, a single project can straddle the change, so you need VAT invoice and tax point dates, not the heads of terms. If you work in construction, the interaction with the domestic reverse charge for construction services makes tax point discipline doubly important.
Do I have to leave the scheme for an asset I already own?
No. Existing capital items that are already part-way through a ten-year adjustment period carry on under the old rules. They are not released early, and you cannot use the new £600,000 threshold to walk away from adjustments on an asset acquired before the change.
So a unit acquired in 2022 for more than the old £250,000 threshold stays in the scheme and keeps generating annual adjustments until its adjustment period ends, even though an identical purchase made today could fall outside it. This is a forward-looking reform, not an amnesty.
Worked example: a £400,000 commercial unit
A partially exempt business buys a commercial unit for £400,000 plus VAT.
Scenario A: supply takes place on or after 29 July 2026
£400,000 excluding VAT sits below the new £600,000 threshold, so it is not a capital item at all. The business recovers input VAT under its normal partial exemption method and that is the end of it. No CGS record, no ten intervals, no annual recalculation.
Scenario B: supply took place in June 2026
The same £400,000 purchase, but the supply happened before 29 July 2026. Under regulation 1(3) the old rules continue to apply, and £400,000 is above the old £250,000 threshold. It is a capital item with a ten-interval adjustment period, and the business keeps recalculating annually for the remainder of that period. Identical price, identical property, completely different compliance burden. The only variable is the supply date.
Why does gov.uk still show the old figures?
Because VAT Notice 706/2 on gov.uk was last updated on 29 December 2020. At the time of writing it still displays the old £250,000 and £50,000 thresholds. HMRC guidance notices are not the law, and here the notice lags the legislation badly.
Use the Notice for how the mechanics work: intervals, the adjustment formula, what counts as a capital item, disposal rules. Use SI 2026/765 itself for the thresholds and the scope. If an adviser quotes you £250,000 from the notice, they are quoting guidance that predates the reform by more than five years.
Which businesses should act now?
- Partially exempt property buyers with purchases between £250,000 and £600,000 excluding VAT supplied on or after 29 July 2026. These now fall out of the scheme entirely.
- Landlords holding a mix of opted and exempt property. Our accountants for landlords service covers option to tax and partial exemption alongside this.
- Anyone tracking computer equipment supplied on or after 29 July 2026. There is nothing to track.
- Businesses mid-project on construction or refurbishment spend straddling the change date.
What records should you keep?
Keep VAT invoice and tax point evidence for every item of relevant expenditure near the threshold, not just the contract. If HMRC challenges whether an asset is a capital item, the supply date is the fact in dispute, and a signed contract will not settle it. Existing CGS records must be retained for the full adjustment period regardless.
How does this fit with the rest of your VAT position?
The Capital Goods Scheme sits on top of your normal VAT accounting rather than replacing it, so adjustments still flow through your ordinary return. If you are unsure how those boxes work, start with our guide to completing a UK VAT return, then check whether you are on the right scheme in our overview of UK VAT schemes. Leaving the CGS behind does not release you from other obligations either: if you are considering VAT deregistration, capital items still in an adjustment period have their own consequences.
What should you do next?
If you have a property purchase, development or major refurbishment landing in 2026, pin down the supply dates before you decide whether a capital item exists. The difference between the contract-date reading and the correct supply-date test is ten years of adjustments on assets between £250,000 and £600,000.
Our qualified accountants handle partial exemption and Capital Goods Scheme work for owner-managed businesses, property investors and charities. For a second opinion on whether an asset is in or out of the scheme, book a free call with Zmartly or read more about our VAT services.
Frequently asked questions
Does the Capital Goods Scheme still apply to computers?
No. From 29 July 2026 computers and computer equipment are removed from the Capital Goods Scheme entirely. SI 2026/765 omits regulation 113(2)(d) of the VAT Regulations 1995, so the old £50,000 excluding VAT computer threshold no longer applies. HMRC's rationale is that equipment costs have fallen so far since the scheme began in 1990 that the threshold was almost never triggered.
What is the new Capital Goods Scheme threshold?
For land, buildings and civil engineering works the threshold rose from £250,000 to £600,000 excluding VAT on 29 July 2026, under regulation 113(4)(a) as amended. The adjustment period is unchanged at 10 intervals for land and buildings. Note that VAT Notice 706/2 on gov.uk was last updated on 29 December 2020 and still shows the old figures.
Does the change apply if I signed the contract before 29 July 2026?
The contract date is not the test. Regulation 1(3) of SI 2026/765 says the amendments have no effect where relevant expenditure was on goods or services supplied to the owner before 29 July 2026, goods imported before that date, or goods acquired from a member State before that date. So a contract signed in June 2026 where the supply takes place in September 2026 falls under the new £600,000 rules.
Do I have to leave the scheme for an asset I already own?
No. Existing capital items already part-way through a 10-year adjustment period continue under the old rules and are not released early. You carry on making annual adjustments until that adjustment period ends, even if an identical purchase made today would fall below the new £600,000 threshold.
Sources
- The Value Added Tax (Amendment) Regulations 2026, SI 2026/765 (legislation.gov.uk)
- Capital Goods Scheme (VAT Notice 706/2) (gov.uk, last updated 29 December 2020)
- VAT Capital Goods Scheme and capital assets (gov.uk)
- Tax update spring 2025: simplification, administration and reform (gov.uk)
