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

The following Tax guidance 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
  • Disposal
  • Part disposals
  • Disposals for no consideration
  • more

FORTHCOMING CHANGE: HMRC published a call for evidence on 18 July 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 duration of CGS intervals. The call for evidence did not specify the potential new threshold and intervals, but noted that there was a question as to whether any increased threshold should apply to alterations, extensions, annexes and refurbishments. The closing date for comments was 26 September 2019 and no timescale was given for any next steps by HMRC.

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 good practice to obtain warranties about the CGS position (see Practice Notes: Transfers of a going concern involving land and buildings and