From 29 July 2026, the UK Capital Goods Scheme gets its first meaningful simplification in years. Computers drop out of the scheme entirely, and the property threshold jumps from £250,000 to £600,000 exclusive of VAT. It is live secondary legislation: the Value Added Tax (Amendment) Regulations 2026 (SI 2026/765), made on 7 July, laid on 8 July, and coming into force on 29 July.
If you have property projects, fit-outs, PE portfolio capex, partial exemption, or a VAT recovery model still built on the old CGS map, re-cut the numbers now. HMRC’s policy paper on the simplification of the Capital Goods Scheme is clear on the headline. The board detail is the transitional rule: spend before 29 July can lock an asset into the old regime for the full adjustment period.
This is not a niche VAT issue. It sits in cash flow, project timing, option-to-tax strategy, deal diligence, and whether your ERP is still tracking assets that no longer need tracking.
What the Capital Goods Scheme Actually Does
CGS is HMRC’s multi-year true-up for high-value capital assets. You recover VAT up front based on intended taxable use, then revisit recovery if taxable versus exempt use changes. Property is typically up to 10 intervals; computers have been 5. The operational rulebook still sits in VAT Notice 706/2 and HMRC’s overview on the Capital Goods Scheme for VAT.
Until 29 July 2026, the main pressure points have been property at £250,000+, single computers at £50,000+, and ships/aircraft/vessels at £50,000+. The first two categories change. The third does not.
If your business is fully taxable, CGS often feels like paperwork with no cash effect. If you are partially exempt — banks, insurers, many healthcare and education operators, some holding companies, mixed-use property businesses — CGS is a live recovery lever and clawback risk. Removing assets is not pure upside: you lose admin burden, and you can also lose the future upside adjustment.
What Changes on 29 July 2026
1. Computers leave the scheme. Regulation 113(2)(d) of the VAT Regulations 1995 is omitted. From 29 July 2026, capital expenditure on computers and computer equipment is no longer a CGS capital item. VAT recovery falls back to ordinary input tax and partial exemption rules without multi-year CGS tracking. That category has been largely theoretical for years. The £50,000 single-item threshold almost never bites for modern hardware, and HMRC’s impact note calls it largely redundant.
2. Property threshold rises from £250,000 to £600,000. Land, buildings and civil engineering works only enter CGS where qualifying capital expenditure is £600,000 or more exclusive of VAT. That threshold had not moved since 1990, so property inflation dragged mid-market fit-outs and smaller freeholds into a 10-year regime designed for larger projects.
From 29 July, a £400,000 warehouse fit-out or £500,000 freehold that would previously have triggered CGS sits outside the scheme if no pre-29 July capital spend has already been incurred. ICAEW has summarised the same two changes cleanly in its note on the government’s CGS reforms. Saffery’s July VAT update and Moore’s CGS briefing make the same practical points for finance teams. Ships, aircraft and vessels remain in.
The Transitional Trap CFOs Keep Underestimating
Read regulation 1(3) of SI 2026/765 carefully. The amendments have no effect in relation to a capital item if the owner incurred any relevant VAT-bearing capital expenditure on or in relation to that capital item before 29 July 2026. HMRC’s policy paper uses the same logic: if any capital expenditure on the item was incurred before the operative date, the old rules continue for that asset.
That means a project that starts with a £50,000 professional fee invoice in July can lock the whole asset into the old £250,000 threshold. A phased refurbishment that has already crossed the old threshold before 29 July does not magically fall out of CGS just because total spend would have been below £600,000 under the new test. Existing CGS assets continue under current adjustment periods. This is not a blanket reset of the register.
Saffery puts the planning point bluntly: some businesses may want to delay first capital spend until on or after 29 July where total expected spend sits below £600,000 and CGS is unattractive. That is only good advice if commercial timing, contractor mobilisation, funding, and option-to-tax strategy all support delay. Do not move a critical path for a paper saving if the asset is fully taxable and CGS would have been neutral.
The mirror-image risk is also real. If taxable use will rise later — option to tax, tenant mix change, or conversion of exempt activity — keeping an asset inside CGS can be valuable. Moore’s note is clear: simplification can mean missed recovery if future taxable use improves and the asset never enters the scheme.
Where This Hits the CFO Agenda
Capex pipeline. Pull every live and approved project with property or civil works between £250,000 and £600,000 exclusive of VAT. Split the list into already incurred spend, no spend yet, spend expected before 29 July, and spend expected after. Those four buckets drive different CGS outcomes.
Partial exemption and cash. If you are partially exempt, CGS is a recovery architecture, not just a compliance schedule. Map each borderline project against your current recovery rate, expected recovery rate over 10 years, and whether an option to tax is on the table. HMRC scores about £0.6 million a year of admin savings across all affected UK businesses. Your recovery swing on one building can dwarf that.
ERP and tax technology. If your fixed-asset or tax engine still treats every £250,000 building project as CGS and still allows computer CGS flags, update the rules with an effective date of 29 July 2026 and keep dual logic for grandfathered assets.
PE and M&A diligence. For property-heavy portcos, ask: which assets are on the CGS register; which live projects will cross the old or new threshold; and whether sellers have accelerated or deferred invoices around 29 July. A £520,000 fit-out started in June is a different diligence item from the same fit-out started in August.
Option to tax. Option-to-tax decisions often sit beside CGS analysis. If a property sits outside CGS under the new threshold, recovery becomes more front-loaded and less flexible. That can still be fine — but it should be a conscious choice, not an accident of threshold change.
Seven Actions Before 29 July
- Inventory the CGS register — current assets, remaining intervals, last adjustment, and owner entity.
- Rebuild the 2026–27 property capex list at VAT-exclusive values and flag every project in the £250k–£600k band.
- Identify first-spend dates — professional fees, deposits, contractor valuations, anything that can constitute relevant capital expenditure before 29 July.
- Decide delay versus accelerate deliberately — delay only where commercial reality supports it and CGS is unattractive; accelerate only where being inside the scheme is useful and cash allows.
- Re-run partial exemption scenarios — base case, higher taxable use, lower taxable use.
- Update systems and process notes — thresholds, computer category retirement, grandfathering logic, and who signs off borderline classification.
- Brief the board or investment committee once — what changes, which projects are affected, cash impact range, and who owns the 29 July cut-over.
For a short July VAT checklist, Ross Martin’s CGS simplification note and its 16 July SME tax update are useful companions to the primary sources.
Bottom Line
From 29 July 2026, CGS is narrower and saner. Computers are out. Property only comes in from £600,000 exclusive of VAT. Existing assets and any project with relevant pre-29 July capital spend stay on the old map. The CFO job is to re-cut the capex pipeline, decide which borderline projects should start before or after the cut-over, update systems, and make partial-exemption recovery a design choice rather than an accident of invoice timing.
Do not oversell it. CGS remains for higher-value property and ships/aircraft/vessels. Partial exemption remains complex. HMRC scores the measure as negligible for the Exchequer — a simplification win, not a tax giveaway. The real value is fewer low-value assets trapped in a 10-year regime and a cleaner planning boundary for mid-market property projects.
If you have live property projects, PE portfolio capex, or a partially exempt VAT model and want a second pair of eyes on the 29 July cut-over, contact Mark at Tanous. Twelve days is enough time to plan. It is not enough time to discover the issue after the first contractor valuation has already locked the old rules in place.