Understanding the Impact of CGS Increase

Opinion

2 Jun

s commented on recently, HMRC have at long last plan to raise the Capital Goods Scheme (CGS) limited from £250k, set in 1990, up to £600k.

I checked this number out using an BoE inflation calculator which came to £616k, so expect that's where they got their new value from. It's been a long time coming so whilst others were calling for £1m - £2.5m, I'm grateful and will take what we get.

There is no confirmation of when this will kick in, but I expect it to be part of the Autumn budget and the next Finance Bill at the end of the year. Until then, we'll continue with the antiquated limits.

So why is this important? This is the limit that HMRC consider commercial land and/or property to be expensive. They take more interest in CGS items, particularly in two areas:

Businesses have to monitor their taxable use of CGS assets for a period of (typically) 10-years. This means they may have to pay back some of the VAT originally recovered if it's later used to make exempt or non-business supplies. Similarly if a business hasn't recovered all the VAT already, then it has the ability to recover more VAT up to 10-years later if their taxable activities increase.

This is also the limit where HMRC's complex anti-avoidance rules kick in. Businesses may want to opt to tax, choosing to charge VAT on rents etc. However where certain conditions apply, the anti-avoidance rules won't let them - typically blocking VAT recovery. These rules won't change, but should only apply to more expensive land and buildings following implementation of the change.

I'm particularly pleased about this second point. These anti-avoidance rules were only meant to protect the Revenue for larger properties, and I personally don't believe £250k is fit for purpose anymore dragging in far too many transactions.

There is a bit more to the CGS so any questions please reach out - also I'll save my thoughts on the deminimis limits for my next #VITAOpinion.

In the meantime, what do you think - is £600k the right number and do you have any war stories involving the CGS?