HMRC published Revenue and Customs Brief 7 (2026) on 30 July. The rules took effect the day before. For any CFO with property projects, fit-outs, partial exemption or a mixed taxable/exempt model, this is a live controls and cash item — not a technical footnote.
Two changes matter:
- Computers and computer equipment leave the Capital Goods Scheme (CGS) for expenditure incurred on or after 29 July 2026.
- The land, buildings and civil engineering threshold rises from £250,000 to £600,000 (exclusive of VAT) from the same date.
Aircraft, ships, boats and other vessels stay in at £50,000. Primary sources: the brief, the full text of Changes to the VAT Capital Goods Scheme, updated VAT Notice 706/2, and SI 2026/765. Professional confirmation is aligned across ICAEW, PKF Smith Cooper, Price Bailey and practical notes such as Artifin’s CGS briefing. If your board pack still quotes £250k or a five-year computer track, it is already stale.
What CGS actually does
CGS is HMRC’s multi-year true-up on input tax for big capital assets. You do not reclaim VAT once and forget it. You monitor taxable use over an adjustment period and claw back or reclaim as use changes. Standard intervals: 10 for land, buildings and civil engineering; 5 for ships and aircraft (and, until 29 July 2026, computers).
That makes CGS a finance-systems problem. Registers need asset IDs, first-use dates, initial recovery percentage, subsequent-interval recovery and return due dates. Notice 706/2 expects records long enough to defend a ten-year trail — beyond the usual six-year VAT comfort blanket.
Wholly taxable groups are not immune. A building bought for fully taxable use can still force adjustments years later if exempt activity moves into that space — insurance, certain financial services, some education/health models, exempt property supplies. Notice 706/2 walks through that pattern. “We never worry about CGS” often means one strategic pivot away from a multi-year true-up.
Computers leave the scheme
Before 29 July 2026, computers and computer equipment at £50,000+ ex VAT sat in CGS for five years. From that date, new acquisitions are not capital items for CGS purposes.
- Server rooms, workstation fleets and similar IT capital spend on or after 29 July 2026 do not start a five-year CGS clock.
- Recovery follows normal partial exemption / business–non-business rules at claim. No ongoing CGS intervals on those new assets.
- Existing computer capital items already in the scheme stay until their adjustment period ends. Grandfathering is not optional.
Boundary questions remain: fabric of a building versus standalone kit, and how costs are capitalised. Align VAT and fixed-asset definitions before the next data-hall or major fit-out posts. Then stop the tax engine opening phantom CGS items on post-change computer spend.
Property threshold to £600,000
The £250,000 property line had sat since the early 1990s. From 29 July 2026 it is £600,000 ex VAT. RCB 7 applies the new threshold to land acquired on or after that date, and to buildings and civil engineering works acquired, constructed, refurbished, fitted out, altered or extended on or after that date.
Office refurbs, retail fit-outs, warehouse upgrades and many landlord improvement programmes between £250k and £600k ex VAT no longer auto-create a ten-year CGS item when spend is incurred on or after the change date.
What still bites:
- Projects at or above £600k ex VAT — full CGS, ten intervals.
- Anything already in under the old £250k test — remains until the adjustment period ends, even if later intervals fall after 29 July 2026.
- Value build-up under Notice 706/2 — construction, professional fees, materials, fit-out goods that form part of the fabric. Do not “manage” under the threshold by ignoring fees or splitting one commercial job without a defensible basis.
ICAEW tracks the policy trail from the old partial-exemption/CGS call for evidence through to secondary legislation. The stated aim is less admin. The CFO job is to re-map which live and pipeline projects are in, out or grandfathered.
The grandfathering trap
RCB 7’s application section belongs on the tax risk register. Legacy items stay in. New computer spend is out. Old computer items still inside their five-year window are not freed early.
You now run a dual regime:
- Legacy book — old computers still adjusting; property that crossed £250k before the change; ten-year clocks still ticking.
- New book — property only from £600k; no new computer CGS items; vessels/aircraft unchanged.
If ERP, tax engine or spreadsheet collapses those into one “from August 2026” rule set, you will over-adjust or under-adjust. Neither survives an audit-committee or HMRC enquiry cleanly.
Who should care this week
Partially exempt groups — banks, insurers, mixed property, healthcare/education hybrids, charities with taxable arms. Higher threshold means fewer new items; it does not end interval monitoring on the big ones.
PE and portfolio CFOs — QoE packs often treat VAT on capex as a simple reclaim. For UK targets with exempt income or planned use changes in owned premises, CGS is deferred tax-cash and compliance risk. Diligence should ask: legacy CGS items, post-29 July projects clearing £600k, and who owns the interval calendar after completion.
Property, retail, logistics, construction — redesign capex memos for the £250k–£600k band under the new test, not a 2024 policy paste.
Tech and digital — strip computer CGS from new-spend controls; keep legacy computers on a run-off schedule.
CFO checklist before the next VAT return
- Inventory open CGS items — category, first-use, intervals left, initial recovery %, last adjustment. Separate legacy computers.
- Freeze rules in the tax engine — no new CGS on post-29 July computers; £600k property test with correct expenditure-date logic.
- Re-price the pipeline — every project between £250k and £600k ex VAT: expenditure timing versus 29 July 2026. “Feels new” is not the test if qualifying spend pre-dated the change.
- One number for value — capitalisation policy and Notice 706/2 inclusions must match across finance, projects and VAT.
- Tie CGS to partial exemption — weak PE methods poison interval adjustments. See VAT Notice 706.
- Audit-committee one-pager — dual regime, material open items, next adjustment dates, residual risk if building use will change.
- Agent pack — RCB 7, SI 2026/765, open-item list. Do not assume software patched thresholds on day one.
Sense-checks
£400k retail fit-out, first costs after 29 July 2026 — outside CGS. Same project with qualifying spend above £250k before that date — legacy CGS continues; completion after 29 July does not eject you.
£80k servers, September 2026 — no new CGS item. Servers bought 2024 above £50k, still in the five-year window — keep adjusting; abolition is prospective, not an amnesty.
£700k office, October 2026 — still in CGS. £550k office, October 2026 — outside on the new property threshold, if valuation inclusions are correct.
Wider 2026 VAT stack
CGS simplification sits inside a busier agenda. Tax Update 2026 is still running August consultations, including mandatory Direct Debit for many VAT and PAYE return liabilities (closes 16 August 2026). Firm overviews such as BDO’s 2026 indirect tax note keep stacking digital reporting, payment rails and scheme tweaks into one operating plan.
“Simplification” is not permission to delete controls. HMRC removed computers and raised a threshold. It did not retire partial exemption, option to tax, or use evidence on large property assets. Less scope is not less scrutiny on what remains.
Bottom line
RCB 7 genuinely cuts admin for a large mid-market band of property and IT projects — if you implement the dual regime cleanly. The failure mode is obvious: keep treating every £300k refurb as CGS forever, or drop legacy items early and meet the error on enquiry.
This week is mechanical. Refresh the CGS register. Patch threshold and computer rules. Confirm expenditure dates on every live project in the £250k–£600k band. Put grandfathered items on a run-off calendar the audit committee can see. Then file knowing which assets still owe HMRC a multi-year conversation — and which ones finally do not.
Mark Hendy is a PE-facing CFO and tax practitioner. This article is general information, not advice on any specific transaction or return position.