Following its announcement in the Spring 2025 Tax Update, the Government has now confirmed changes to the Capital Goods Scheme (CGS) that will take effect from 29 July 2026, with the aim of reducing VAT compliance burdens for VAT-registered businesses and organisations.

What is changing?

Two significant changes are being introduced:

• Computers and computer equipment will be removed from the scheme, meaning businesses will no longer need to undertake CGS adjustments for these assets.

• The threshold for land, buildings, and civil engineering works will increase from £250,000 to £600,000 (excluding VAT). Only property related capital expenditure above this new threshold will fall within the scope of the scheme.

Why has the Government made these changes?

The property threshold has remained unchanged since the CGS was introduced in 1990. As property values have increased, more capital works have fallen within the scope of the scheme and subject to its strict adjustment calculations, which can be complex, onerous, and resource-intensive, particularly for smaller businesses and organisations. The higher threshold is intended to better reflect current market conditions and reduce unnecessary administration.

The removal of computers from the scheme reflects the fact that the category is now rarely relevant, as generally the value of individual computer equipment has fallen significantly over time.

What does this mean for businesses?

Many businesses and organisations undertaking property acquisitions, developments, or refurbishments below £600,000 will no longer need to monitor and calculate CGS adjustments over the asset’s adjustment period. This should reduce record keeping requirements and ongoing compliance costs.

However, businesses should note that the changes are not retrospective. Existing CGS assets and capital expenditure incurred before 29 July 2026 will remain subject to the current rules.

HMRC’s policy paper can be found here.

Our view

These changes are a welcome simplification of the VAT regime, but long overdue, particularly given the measure was first formally announced in April 2025. The increased property threshold and removal of computer equipment from the CGS should reduce administrative burdens for many businesses and organisations while allowing HMRC's focus to remain on higher value capital projects that are more reflective of current market values.

How we can help

Businesses and organisations that are planning purchases of land and property or undertaking capital works should take appropriate advice to ensure their CGS calculations are compliant, particularly where there are assets falling under the old rules and the new rules.

For advice on how the changes may impact your organisation, please contact our VAT team.