VAT—capital goods scheme
Produced in partnership with Martin Scammell
VAT—capital goods scheme

The following Tax practice note Produced in partnership with Martin Scammell provides comprehensive and up to date legal information covering:

  • VAT—capital goods scheme
  • Why does this matter?
  • What is the CGS?
  • What expenditure is in the CGS?
  • How does the CGS apply to non-business expenditure?
  • Over what period can CGS adjustments arise?
  • Ongoing adjustments
  • Example
  • Disposal
  • Disposal as a supply
  • More...

FORTHCOMING CHANGE: HMRC published a call for evidence in 2019 on ‘simplifying’ the rules on VAT partial exemption and the CGS. This considered various changes including raising the current CGS threshold for land and property, and changing the number of CGS intervals. At Spring Budget 2020 the government confirmed that it would continue to engage with stakeholders and would publish a response in due course.

This Practice Note looks at the principles of the VAT capital goods scheme (CGS).

Why does this matter?

The CGS can create a substantial liability for property owners, particularly on a disposal. This can usually be avoided, but only if it is recognised and appropriate action is taken. This does not always happen, and negligence claims are not unusual.

The CGS can also sometimes allow additional VAT to be claimed from HMRC, and for some businesses it imposes an ongoing compliance obligation.

In a transfer of a going concern (TOGC), a buyer will often be acquiring potential liabilities, and it is strongly recommended that they obtain warranties about the CGS position (see Practice Notes: Transfers of a going concern involving land and buildings and VAT TOGC clause—asset purchase agreement—buyer and seller wording).

What is the CGS?

In general, businesses can recover VAT where it relates to their taxable supplies, but not where it relates to exempt supplies or non-business activities. If it relates only partly

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