The Value Added Tax (Amendment) Regulations 2026

The Value Added Tax (Amendment) Regulations 2026 introduce significant changes to Part 15 of the Value Added Tax Regulations 1995, which governs the Capital Goods Scheme (CGS). These amendments aim to streamline VAT recovery processes and reduce administrative burdens for businesses. Specifically, the Regulations remove computers and items of computer equipment from the list of capital items subject to the CGS. Concurrently, the minimum value of VAT-bearing capital expenditure for land, buildings, or civil engineering works to fall within the CGS has been substantially increased from £250,000 to £600,000. These changes will impact how businesses manage input tax recovery on high-value assets, particularly in the property and technology sectors.

These amendments are poised to have a tangible impact on VAT-registered businesses, particularly those engaged in significant capital expenditure. The adjustments reflect a governmental effort to modernise VAT rules, acknowledging the evolving nature of asset values and technological lifecycles, while simultaneously seeking to alleviate the administrative complexities associated with the CGS. For legal professionals advising on property transactions, corporate investments, and general VAT compliance, a thorough understanding of these changes is crucial to ensure accurate input tax recovery and avoid potential compliance pitfalls.

Prior to these amendments, the CGS applied to specific categories of capital expenditure. For land, buildings, and civil engineering works, the scheme was triggered if the VAT-exclusive value of the expenditure was £250,000 or more. These assets were subject to a 10-year adjustment period. Additionally, individual computers or items of computer equipment with a VAT-exclusive value of £50,000 or more were also included within the CGS, subject to a 5-year adjustment period. The CGS requires annual monitoring of the asset's use, with adjustments to the initially reclaimed VAT made if the proportion of taxable use varies from year to year.

The changes reflect a broader policy objective of reducing the regulatory burden on businesses, particularly smaller entities, by narrowing the application of complex VAT schemes to only the most significant capital expenditures. The CGS, while ensuring fairness in VAT recovery, has historically been a source of complexity and potential error for many businesses. By removing categories of assets that are less prone to long-term changes in taxable use (like rapidly depreciating computer equipment) and adjusting thresholds to reflect current economic values, the Regulations aim to make the CGS more proportionate and manageable. This aligns with the government's stated intention to simplify the CGS, as announced in the Spring 2025 Tax Update.

It is imperative for legal and tax advisors to update their guidance on VAT recovery for capital items, ensuring that clients understand the new thresholds and the implications for both past and future acquisitions. Businesses should assess whether any planned or ongoing property projects now fall outside the CGS, and adjust their VAT accounting procedures accordingly. While these changes generally lead to simplification, diligent record-keeping and a clear understanding of an asset's intended use at the point of acquisition remain fundamental to accurate VAT compliance. Practitioners should monitor any further HMRC guidance on the implementation and interpretation of these amendments.