The VAT capital goods scheme affects input VAT recovery relating to high-value capital assets. Input VAT is a tax incurred on most purchases made by VAT-registered firms, and they can usually reclaim it from HMRC in full.

The scheme usually applies to partially-exempt businesses and firms with assets that were used for both non-business and business purposes at the time the asset was purchased. However, the scheme applies to all businesses that acquire such assets where, at some point during the ‘adjustment period’, the business diversifies into an exempt activity.

The scheme aims to correct the amount of VAT recovered when the use of the asset, between exempt and non-exempt supplies, in later years varies from that in the year of purchase. Over the course of the adjustment period, the VAT recovered should reflect the actual use of the asset over the whole period. The scheme does not apply to assets acquired for resale or any used for wholly non-business purposes.

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The views expressed in this article are the personal views of the Author and other professionals may express different views. They may not be the views of Lambert Chapman LLP. The material in the article cannot and should not be considered as exhaustive. Professional advice should be sought in connection with any of the issues contained in the article and the implementation of any actions.

Lambert Chapman Chartered Accountants

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