Input tax is the VAT which a VAT-registered business incurs on purchases (stock, overheads, capital assets) and which it uses for business purposes. If the business makes only taxable supplies, it can recover all its input tax (with certain exceptions). If the business makes only exempt supplies, it cannot recover any of its input tax (and usually will not be VAT registered); if it makes both taxable and exempt supplies, it is partly exempt and can only recover the input tax attributable to taxable supplies.
In the case of capital goods, it is possible that the use to which the goods are put may vary between taxable and exempt (and possibly non-business) over a period of time. The Capital Goods Scheme enables/requires a taxpayer to make adjustments to the original input tax recovery to reflect any variation over a five or ten-year period (depending on the nature of the goods) where the capital goods are of significant value.
Computers, aircraft, ships, boats and other vessels with a value of not less than £50,000 (five-year period of adjustment)
Land, buildings and civil engineering works with a value of not less that £250,000 (ten-year period of adjustment)
The initial recovery of input tax on a capital item is based on the taxpayer’s recovery rate at the time the capital item is acquired. Where that recovery rate changes in a subsequent tax year within the five- or ten-year adjustment period, an adjustment is made to reflect that change.
Discover our 0 Tax Guidance on Input Tax/Capital Goods Scheme
Speed up all aspects of your legal work with tools that help you to work faster and smarter. Win cases, close deals and grow your business–all whilst saving time and reducing risk.
**Free trials are only available to individuals based in the UK. We may terminate this trial at any time or decide not to give a trial, for any reason.
""I have relied on TolleyLibrary down the years for its wealth of detailed information, multiple sources and ease of use. I have never contemplated using anything else.""
Access all documents on Input Tax/Capital Goods Scheme