By Michael Ashdown, Ashdown VAT Consultancy  |  August 2026

Take a straightforward example: a retailer spends £400,000 fitting out a new unit — new shopfront, flooring, fixtures, the works. Under the rules that applied until recently, that spend alone would have been enough to bring the fit-out within the Capital Goods Scheme, committing the business to an annual VAT recalculation for the next ten years, whether or not its VAT position ever actually moved.

From 29 July 2026, the same £400,000 fit-out sits outside the scheme entirely.

That change is the result of one of the more significant VAT simplifications in years — and it’s worth understanding properly, both for the immediate relief it offers and for a transitional detail that is catching a surprising number of businesses out.

What’s Actually Changed

Two changes took effect on 29 July 2026, introduced through amending regulations to the VAT Regulations 1995:

  • The CGS threshold for land, buildings and civil engineering works has risen from £250,000 to £600,000 (excluding VAT).
  • Computers and computer equipment have been removed from the scheme altogether, along with the £50,000 threshold and five-year adjustment period that used to apply to them.

Both changes are aimed squarely at reducing administrative burden, and both were a long time coming. The £250,000 property threshold hadn’t moved since the Capital Goods Scheme was introduced in 1990 — more than three decades during which construction costs and property values have moved a great deal further than VAT policy has.

Why the Capital Goods Scheme Exists

For anyone less familiar with it: the CGS requires VAT-registered businesses to adjust the VAT they’ve recovered on certain high-value capital assets, based on how those assets are actually used over time rather than how they were expected to be used at the point of purchase.

If a property’s mix of taxable and exempt use shifts during the adjustment period — up to ten years for land, buildings and civil engineering works — the business may need to recover additional VAT from HMRC, or repay some of what it originally claimed. It’s one of the more technically demanding corners of VAT compliance, not because the concept is complicated, but because getting the annual calculation right, year after year, requires discipline and a clear paper trail.

The Practical Impact

Raising the threshold to £600,000 pulls a substantial number of projects out of the scheme entirely. Office refurbishments, retail unit fit-outs, industrial property improvements and smaller commercial acquisitions that would previously have triggered ten years of CGS monitoring will, in many cases, now sit outside it completely.

For the businesses affected, that means:

  • No requirement to track and recalculate VAT recovery annually for the life of the project
  • No obligation to monitor changes in taxable versus exempt use over a ten-year adjustment period
  • Meaningfully less administrative and advisory cost tied up in ongoing compliance

For businesses that only occasionally take on major property projects — a professional practice refurbishing its offices, a charity renovating a building it partly lets out — this is a genuine and welcome reduction in burden.

THE DETAIL MOST BUSINESSES MISS The new £600,000 threshold does not apply simply because a project is ongoing after 29 July 2026. It applies by reference to when the VAT-bearing expenditure was actually incurred, based on when the supply took place rather than when payment was made or the building opens its doors. Where any qualifying expenditure on a project was incurred before 29 July 2026, the whole project remains subject to the old £250,000 threshold and CGS rules. It does not get split proportionally between the old and new thresholds, even if the total project cost would fall comfortably below £600,000 once complete.

What This Means for You

If you have a property acquisition, refurbishment or development project either underway or in the pipeline, it’s worth reviewing:

  • Whether qualifying expenditure has already been incurred, and when
  • How spend is likely to be phased against the 29 July 2026 cut-off
  • Whether existing CGS-registered assets are affected, or continue as before
  • What the change means for wider VAT recovery and partial exemption planning

Getting this assessment right at the outset avoids either unnecessary compliance work or an unwelcome surprise further down the line.

Get the Detail Right, From the Start

VAT rule changes like this one are usually good news — less compliance, fewer moving parts to track. But the transitional detail is exactly where technical VAT advice earns its keep, and it’s easy to make an assumption that doesn’t hold up.

If you have a property project that might be affected, Michael Ashdown at Ashdown VAT Consultancy can help you work through the detail and confirm exactly where you stand.