A commercial landlord who spent £400,000 refitting a shop unit last spring is, technically, still answerable to HMRC for another decade — filing an annual VAT adjustment for an asset most owners forget they're even tracking. That obligation comes from something called the Capital Goods Scheme, and from 29 July 2026 it stops catching quite so much ordinary property spending. If you own commercial premises, run a partly exempt business, or are about to sign off a refurbishment anywhere near six figures, this is the kind of quiet regulatory change that's easy to miss and expensive to ignore.
What the Capital Goods Scheme actually is
Most landlords have never heard the phrase "Capital Goods Scheme" and there's no particular reason they should have — it sits deep in VAT machinery, not in the parts of tax law that show up in a typical accountant's newsletter. In plain terms, it's a mechanism that forces businesses to track how a big-ticket asset is actually used over several years, rather than just claiming VAT back once at the point of purchase and moving on. It exists because use can change: an office bought partly for VAT-exempt letting and partly for taxable trading might shift its balance year to year, and HMRC wants the VAT recovery to shift with it.
The scheme applies to two categories of spend. Land, buildings and civil engineering works costing more than a set threshold trigger a ten-year adjustment period, during which the business reviews its taxable use annually and corrects its VAT claim up or down. Computers and computer equipment above a separate, much lower threshold have historically triggered a shorter five-year period. Miss a review, or get the maths wrong, and the correction lands on a VAT return you weren't expecting to touch again.
The two changes landing on 29 July 2026
Two things change on that date, both confirmed as government policy rather than left open for consultation. The property threshold for land, buildings and civil engineering works rises from £250,000 to £600,000, excluding VAT. That £250,000 figure had not moved since the scheme was introduced in 1990 — thirty-six years without an uplift, while construction costs climbed steadily around it. Anyone spending under £600,000 on qualifying property work after the change date simply won't create a Capital Goods Scheme item at all.
Computers and computer equipment leave the scheme entirely. The old £50,000 threshold and its five-year adjustment period stop applying to new spend from 29 July 2026 onwards. HMRC's own reasoning is refreshingly candid: qualifying computer equipment fell so far below £50,000 as prices dropped over the decades that the category had become almost redundant in practice — a rule still on the books that rarely did anything. Both changes are implemented through amendments to regulations 113, 113A and 114 of the VAT Regulations 1995 (SI 1995/2518), part of the wider tax simplification package the government announced in April 2025.
Why the date on the invoice decides everything
Here's the detail that trips people up: none of this is retrospective, and it doesn't depend on when a project finishes.
What matters is the tax point — the date the expenditure is actually incurred, not the date the builders hand back the keys. Spend before 29 July 2026 gets tested against the old £250,000 and £50,000 thresholds. Spend on or after that date gets tested against the new £600,000 threshold. For a straightforward purchase that's simple enough, but for a phased refurbishment stretching across the summer, it means different tranches of the same project could land on opposite sides of the rule depending purely on invoice dates. Your contractor's application for payment isn't automatically the tax point either — for most standard-rated construction work it's the earlier of the invoice date and the date payment actually changes hands, so don't let a certificate date settle the question on its own. If you're mid-refurbishment right now, get your accountant to map out exactly which payments fall where before you approve the next stage certificate — reshuffling a payment schedule by a few weeks can be the difference between ten years of paperwork and none at all.
Assets already inside the scheme aren't affected
If your business already has a property or asset caught by the Capital Goods Scheme from a purchase in, say, 2022 or 2023, none of this touches it — that item keeps running its existing ten-year adjustment period under the old rules, regardless of what changes around it. The new threshold only decides whether future spending creates a new item, not whether an old one gets released early. That's worth checking against your own records now, because plenty of businesses lose track of which assets are still inside the scheme once the person who originally flagged them has moved on.
Who actually feels this change
The businesses most affected fall into a fairly identifiable group: partly exempt organisations such as care providers, financial services firms, educational institutions and charities, along with property investors and developers, and SME owners buying or improving commercial premises in that newly-freed £250,000–£600,000 band. Landlords who have opted to tax commercial property — a common move to recover VAT on costs — are squarely in scope too, since option-to-tax status is often what pulls a property into the scheme's reach in the first place. Even a fully taxable business, one that recovers all its VAT with no exemption issues at all, can still trigger a Capital Goods Scheme adjustment later through a change of use. Convert part of a warehouse into let office space a few years after buying it, for instance, and the scheme can still catch up with you even though nothing about the original purchase looked complicated. A dental practice spending £400,000 plus £80,000 VAT on a new clinic before the change date faces ten years of adjustments under current rules; spend the same amount after 29 July 2026, and it falls outside the scheme completely — same building, same use, different tax point, entirely different administrative burden. None of that helps a landlord who's already three years into an adjustment period on an existing building, though, and it's worth being upfront about that: the new threshold changes what happens next, not what's already committed.
Selling a capital item during its adjustment period doesn't wait for the next annual review — it triggers an immediate single reconciliation covering every remaining year in that one VAT return, with the sale treated as either fully taxable or fully exempt use depending on how the sale itself is VAT-rated. That single-hit calculation catches out more sellers than the annual adjustments ever do, because owners plan around the yearly rhythm and forget the disposal rule works completely differently.
What to do before you sign anything
A £900,000 refurbishment still falls inside the scheme under the new rules, so this isn't a blanket exemption for anyone doing serious work on commercial property — it's a threshold shift that helps the middle band, not the top end. If your spend is comfortably above £600,000, expect the same ten-year tracking obligation you'd have faced under the old rules.
- Work out the tax point for any pending or in-progress property spend — this single date decides which threshold applies, and it's not always the date you'd assume.
- Pull your existing Capital Goods Scheme records and check which assets are still inside their adjustment period; don't assume the last review was the final one.
- If your partial exemption method was built around Capital Goods Scheme calculations, get it reassessed — the mechanics that shaped it may no longer apply to your next purchase.
- For anything near the £600,000 line, or a phased development straddling the date, get advice before the contract is signed. Structuring the payment schedule, and sometimes nothing more than that, can determine whether ten years of VAT adjustments apply at all.
HMRC puts the administrative saving at roughly £0.6 million a year across all affected businesses and describes the Exchequer impact as negligible — this was never designed to move tax revenue, only to strip out a compliance obligation that had outlived its purpose. For an individual landlord or small business owner, the practical upside is smaller in cash terms but larger in relief: one fewer annual VAT calculation to remember, one fewer spreadsheet nobody quite owns, one less thing to explain to a new bookkeeper five years after the original purchase.