Capital Goods Scheme VAT

The aim of the Capital Goods Scheme for VAT is to provide a fair and/or reasonable attribution of VAT toward taxable supplies and other supplies, offering business owners the right to recover VAT.

As you know, capital items in your business can be used over the course of a few years and with time, the extent to which you continue to use them in making taxable supplies may vary. If you are currently making or intend to make tax exempt supplies, then it’s worth understanding VAT Notice 706 along with this one.

How does the Capital Goods Scheme for VAT work?

The scheme affects input VAT recovery with regards to high-value capital assets – more on that in just a bit.

Input VAT is the amount of tax incurred on most purchases made by your VAT-registered company, which means you can usually reclaim it in full from HMRC.

The scheme applies to partially-exempt firms and those with assets used both for business and non-business purposes at the time of purchase.

In addition, the scheme also applies to firms which acquire such assets but, at some point during the adjustment period, diversify into an exempt activity.

The main aim of the scheme is to correct the amount of VAT recovered when the use of that asset in the later years differs from what it was originally purchased for – this asset use applies to both exempt and non-exempt supplies.

Throughout the adjustment period, the amount of VAT recovered should be in line with the actual use of your asset over the course of the entire period. Therefore, the scheme is not for assets bought for resale or those bought only for non-business purposes.

High-value capital assets: What does the VAT Capital Goods Scheme apply to?

The Capital Goods Scheme for Vat applies to:

Lands and buildings

The scheme automatically applies to lands and buildings where an expenditure of £250,000 or more is incurred (not including VAT) on:

• Land, building or a part of a building or civil engineering project
• Construction of a building or civil engineering project
• The refurbishing, fitting out, alteration or extension of a building or civil engineering project

‘Civil engineering project’ here refers to works including construction of roads and running tracks, golf courses, installation of water services pipes, etc.

Computer equipment

The scheme applies to individual computer equipment purchased for £50,000 or more (not including VAT). However, VAT on smaller computer equipment or items can be reclaimed along with input VAT on other related purchases using the usual method.

Computerized equipment (computerized phone exchange, e.g.) and computer software are not included.

Ships, boats, aircrafts, and vessels

The scheme applies if more than £50,000 (not including VAT) is spent on the purchase, construction, refurbishment, fitting out, alteration or extension of any kind of ship, boat, aircraft, or vessel.

Closing thoughts on Capital Goods Scheme for VAT

Hopefully, this article offers some initial insight into what a VAT Capital Goods Scheme is. How much you can claim is easy to determine when you work with one of our experienced solicitors.

Our friendly and approachable Accountants in Slough, Adam Accountancy can advise you personally on the ones that apply to you.

Further knowledge from HMRC can be found here