Changes to the Capital Goods Scheme

 The Capital Goods Scheme (CGS) is a VAT adjustment mechanism that applies to certain high-value capital assets, ensuring that VAT recovered reflects how an asset is actually used over time. It is particularly relevant for charities that undertake a mixture of taxable, exempt, and non-business activities.

From 29 July 2026, the CGS is being simplified. The threshold for land, buildings and civil engineering works will increase from £250,000 to £600,000 (excluding VAT), and computers and computer equipment will be removed from the scheme altogether. The changes are intended to reduce administrative burdens and reflect increases in property values since the scheme was introduced.

Higher CGS Threshold, But Charities Should Still Proceed with Caution

However, charities should proceed with caution. HMRC’s published guidance suggests that the new £600,000 threshold will only apply where no capital expenditure has been incurred before 29 July 2026. As a result, projects already under construction or refurbishment may remain within the existing CGS rules if expenditure has already been incurred and the current £250,000 threshold is met.

While the changes will reduce CGS compliance requirements for many charities going forward, further guidance on the transitional rules is still awaited. Charities with ongoing or planned property projects should therefore review their position carefully, as they may still be caught by the existing regime despite the forthcoming increase in the threshold.

VAT rules for charities can often be complex, particularly where property developments and mixed-use activities are involved.

If you would like to understand how these changes could impact your organisation, please get in touch. Our team is always happy to help with any VAT queries and provide practical guidance tailored to your charity’s circumstances.

If you would like to discuss anything mentioned in this article, please contact our charities team here.