Glossary · UK
What is Capital Goods Scheme?
A VAT mechanism that adjusts the input tax recovered on certain high-value assets over several years as their use changes.
Full Definition
The Capital Goods Scheme (CGS) is a VAT rule that spreads and adjusts the recovery of input VAT on certain expensive capital assets over a number of years, rather than allowing a one-off claim in the year of purchase. It applies to items such as land and buildings, and to high-value computer equipment, above set cost thresholds. When a business buys a qualifying asset, the initial VAT recovery is based on the intended taxable use; the scheme then requires annual adjustments over an adjustment period (commonly up to ten years for property) to reflect any change in the proportion of taxable versus exempt use. This matters most to businesses making mixed or partly exempt supplies, such as property developers or financial firms, because it ensures VAT recovery fairly tracks actual use over the asset's life. The standard VAT rate is 20%. The specific cost thresholds and adjustment periods should be confirmed on gov.uk.