Capital goods scheme (CGS)

In this lesson

1. 0:00 Capital Goods Scheme overview
2. 0:31 Qualifying assets and thresholds
3. 1:00 Initial VAT recovery and annual adjustments
4. 2:00 Sale adjustments and disposal rules
5. 3:35 Worked example: Equipment's Limited computer purchase
6. 4:02 Annual adjustment calculation explained
7. 4:51 Sale adjustment and final reclaim

About this lesson

The CGS lets you adjust your input VAT recovery year-on-year based on how much each asset is actually used for taxable supplies, ensuring you only claim the VAT you're genuinely entitled to. You'll discover which assets qualify (land, buildings, computers, and vessels), the cost thresholds that trigger the scheme (£250,000 for buildings, £50,000 for computers), and the recovery periods (10 years for property, 5 years for computers). The lesson walks you through the core calculation: claiming initial input VAT based on your taxable use percentage in year one, then adjusting annually if your taxable supplies percentage changes. You'll also learn how to handle adjustments on sale, where the calculation shifts to reflect the remaining recovery period and the sale price. Through a worked example with Equipment Limited, you'll see how falling taxable supplies trigger repayments to HMRC, and how selling an asset mid-recovery period requires a final adjustment. This is crucial for TX (Taxation) and helps you avoid over-claiming VAT while maximising legitimate recovery—a common exam scenario for partially exempt businesses.

Duration: 6m