Capital Goods Scheme
Frequently, the Capital Goods Scheme (CGS) is overlooked in property acquisitions. If the target property is already within the CGS, then the new owner can continue to run the scheme. It is always an important consideration when carrying out due diligence, as “claw-backs” of input tax can be expensive!
The CGS applies when an entity spends £250,000 or more on a property; including goods or services supplied in connection with an alteration, extension or annex. In addition to this, the costs incurred with a refurbishment or fit out also fall within the capital goods scheme, if again, the total expenditure on the property exceeds £250,000. The CGS period for property expenditure exceeding £250,000 is 10 years.
If a refurbishment is carried out in stages, then each phase should be treated separately for CGS purposes. Over the ten year period, it is necessary to review and see whether there has been any exempt use of the asset.
A schedule of the invoices on which VAT has been claimed should be maintained, this will set out the net costs and VAT claimed. If there is no change in the use of the building and it is still fully taxable then no adjustment is required.
The purpose of the CGS is to adjust input tax claimed for properties and businesses that change their partial exempt trading.
If you have any specific queries about CGS, please contact Wendy.