V7.235 Items within the capital goods scheme
The situation at Example 1 above illustrates why the capital goods scheme plays an important part in ensuring a 'fair' rate of input tax recovery on a major item of expenditure. Consider what would happen if, for example, there were no adjustment period, and the change of use to the insurance brokers office took place after one year instead of five years.
In such a situation, the initial input tax would be reclaimed in full (as attributable to taxable supplies at the time of purchase) and no clawback of tax would be required after the change in activity. This would be commercially unfair to other insurance brokers not able to gain any input tax recovery.
This section deals specifically with the capital goods scheme. For the general clawback and payback provisions that apply when there is a change of intended use of goods or services see V3.467.
So what items are included within the capital goods scheme?
Basically, the following main categories of expenditure need to be taken into consideration (all quoted figures exclude VAT):
• a computer, or an item of computer equipment, costing £50,000 or more
• land, a building or part of a building or civil engineering work or part of a civil engineering work where the value of the interest supplied to the owner is £250,000 or more (excluding any zero-rated or exempt elements)
• a building which the owner alters, or an extension to an annexe which he constructs, where additional floor