706/2/20 Capital goods scheme

Part V8 HMRC Notices
Part V8 HMRC Notices | Commentary

706/2/20 Capital goods scheme

Part V8 HMRC Notices | Commentary

Capital goods scheme

December 2020

This notice cancels and replaces Notice 706/2 (November 2017)

1 Overview

1.1 What this notice is about

This notice explains how the Capital Goods Scheme (CGS) works and which items are covered by the scheme.

Main narrative treatment—V3.470.

1.2 Who should read this notice

You should read this notice if you acquire, create or construct capital items for use in your business and you incur VAT on those items. The aim of this scheme is to provide a fair and reasonable attribution of input tax to taxable supplies and other supplies with the right to recover VAT. Capital items can be used in your business over a period of years. Over the years the extent to which you use these in making taxable supplies can vary.

If you make, or intend to make exempt supplies, it's important to read VAT Notice 706: partial exemption in conjunction with this notice.

1.3 How the scheme works

The scheme requires adjustments to be made to the initial amount of VAT claimed. This reflects the differences in the use of capital items over a period of time. This period is known as the 'adjustment period'. If, during the adjustment period there's any change in the proportion of taxable use then you must make an adjustment to your input tax to take account of this.

1.4 When the scheme does not apply

The scheme doesn't apply if:


    •     the assets are acquired solely for resale


    •     you spend money on assets which are solely for resale


    •     assets are acquired, or you

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