VAT Capital Goods Scheme (CGS)

What is VAT Capital Goods Scheme?

The Value Added Tax (VAT) capital goods scheme has an impact on input tax retrieval with regards to high net worth capital assets. The scheme intends to focus on the recovery of accurate amount of Value Added Tax i.e. VAT recovered when the usage of the asset in future years differs from its usage in the year the asset was purchased. Hence, over the correction period the Value Added Tax recovered reveals the real usage of the asset during that time-period. It must be noted that this scheme is not applicable for assets that are acquired for resale or any other purpose that is not related to the business.

• Building, civil engineering work, land
• Computer equipment and computers
• Boats, ships, aircraft, and other vessels

Building, Civil Engineering Work, Land

If expenditure of at least £250,000 (exclusive of VAT) has been made on the following assets, then the capital goods scheme must apply. Assets include:

1. A building or part of a building, buying land, or civil engineering work
2. Altering or extending a building, refurbishing, or civil engineering work
3. Constructing a structure or civil engineering work

Civil engineering work comprises things such as bridges, golf courses, roads, running tracks, and the setting up of pipes for linking to mains services

Computer Equipment And Computers

With regards to computer equipment and computers, the capital goods scheme will be applicable to distinct items costing a minimum of £50,000 (exclusive of Value Added Tax); Value Added Tax on smaller articles can be reclaimed in the normal way. For instance, a network installation amounting to more than £50,000 might not be considered in the scheme if the price of each distinct article is below £50,000. Similarly, the scheme is not applicable for computerised equipment, even if its price is in excess of £50,000

Boats, Ships, Aircraft, And Other Vessels

The capital goods scheme is applicable where an amount in excess of £50,000 (exclusive of VAT) is spent on fitting out, refurbishing, constructing, modifying or extending a boat, ship, aircraft or other vessel

Assets Not Covered Under The Capital Goods Scheme

The scheme is not applicable if:

• An individual purchases assets just for selling it again
• An individual spends money on assets that was acquired just for resale
• An individual attained an assets, or spent money on assets that will only be used for non-business purposes

Modifications in The Business Conditions Through a Capital Goods Scheme

Certain modifications to a business all through a Capital Goods Scheme period will influence the treatment of capital assets. These alterations comprise:

• Joining or leaving a Value Added Tax group
• Revoking Value Added Tax registration
• Purchasing or selling the business
• Selling an asset in the course of an adjustment period
• Business moving into or out of a Value Added Tax group

Also Read: Buying or Selling a Property in England and Wales

VAT Capital Goods Scheme - CJEU Decides That Buildings Sale And Leaseback Was A Single Transaction

The CJEU has apprehended that a ‘sale and leaseback’ deal for buildings can be measured as a single financing transaction if it didn’t cause a capital goods scheme modification in the Belgian case of Mydibel (case C-201/18). The Belgian case of Mydibel may have an impact on businesses if they have signed an agreement pertaining to sale and leaseback or lease and leaseback transactions that gave rise to a capital goods scheme modification. There may be a possibility of decreasing any adverse effect on input Value Added Tax recovery

Mydibel had recovered input Value Added Tax on the building, modification and repair of buildings (viewed as capital goods) it used in manufacturing potato based produces for sale. In order to upsurge its liquidity it moved in into an immediate funding ‘sale and lease back’, whereby it approved a 99 year lease of buildings to a financial organisation in return for funds and 15 year lease of the buildings at a three-monthly rent working out to be equal to the funds plus interest. Neither the lease to the financial organisation nor the leaseback to Mydibel were themes of Value Added Tax. The refinancing activity took place during the time period for alteration of input Value Added Tax recovery on capital goods

The CJEU held that, the sheer formation of lease, in the way labelled here, could not be held to modifying the factors defining the degree of input Value Added tax under the capital goods scheme. It was also well-thought-out that there is a lone supply where two or more essentials or items supplied by the taxable person to the client are so carefully associated that they form, accurately, a single, inseparable economic supply. On the hypothesis that the provisions did not amount to a supply of goods and may well be measured as a single transaction – the CJEU apprehended that this did not generate an obligation for a modification under the capital goods scheme

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