The VAT Capital Goods Scheme (CGS) is a means of adjusting the initial VAT recovery in respect of certain assets over either 5 or 10 years. The scheme seeks to agree a fair and reasonable attribution of VAT to taxable supplies and non-taxable supplies relating to the use of an asset over its lifetime.

The adjustment period for land and buildings is 10 years and for other CGS assets, 5 years. This adjustment period also considers any non-business use of the asset. The CGS is intended primarily for partly exempt businesses. However, businesses can change direction over the adjustment period and be subject to making CGS adjustments some years after an asset was purchased.

The CGS currently applies to:

• Land and building (including extensions, alterations and refurbishments) with a cost (net of VAT) of £250k or more.
• Computers, or computer equipment, with a cost (net of VAT) or £50k or more.
• Ships and boats with a cost (net of VAT) of £50k or more.
• Aircraft with a cost (net of VAT) of £50k or more.