Capital Goods Scheme

Capital Goods Scheme for VAT – How Does it Work?

25/07/2022Tax Issues , Taxation

If you are dealing with assets that are highly valued, you are in need to know the importance of the capital goods scheme for VAT and how it can affect your relevant matters. In the purchasing process that you are involved with a VAT registered firm, you will struggle with the involvement of input tax here as well. It is allowable for them to claim it fully by informing HMRC.

This scheme tends to deal with partially exempt businesses usually. Also, the firms that have some sort of assets for business use or non-business uses. This is specifically concerned with the time of purchasing the assets. Moreover, in this blog, you will find everything that you need to know about the capital goods scheme for VAT, how it works, and what are different scenarios related to it.


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Capital Goods Scheme for VAT and How Does it Work?

If you are still wondering about the scheme, you must know by now that the scheme is applicable for all kinds of businesses that aim to acquire assets like having effects of the adjustment period. This makes the business diversify for exempt activities. Moreover, the amount that your business has received from the use of such an asset, VAT recovered amount will be recovered with the help of this scheme.

Furthermore, this is not applicable if your assets are up for any kind of reselling. Regardless of the purpose is a fully non-business type. This will be only applicable to the following listed options:

  • Aircraft, other vessels, boats, and ships.
  • Types of equipment like computer
  • buildings and land


In Case Of Capital Allowance Claim

When you are in a scenario where the purchasing of an asset has failed even when the scheme is applicable. It becomes a subject of capital allowance claims. The details will be allowable to be a part of the capital allowance. The following features are salient to consider in this matter:

  • There is a requirement for scheme adjustment at every interval that is subsequent. This can lead to results like a rebate or an extra liability.
  • There will be a great effect of the irrecoverable VAT amount on the calculations of capital allowance.
  • The last day on which the scheme adjustment is required will be considered as the date of addition.


Scenarios Which can Unexpectedly Catch Out Businesses

There are chances of potential scenarios when it comes to the situation that the scheme does not apply to the partly exempted businesses. The unexpected situation of claiming VAT fully must be handled at such a stage. We can consider the example of such a business here that is going to reclaim VAT fully and then it will dispose of the business premises. This is done after the same business is owned for six years.

To avoid this scenario, the taxable supply of the property can help. As VAT will be charged on selling, however, no old reclaimed input VAT will be scattered anymore.


The Bottom Line

Now that you have gathered a fair amount of information about the capital Goods Scheme for VAT provided in this blog, we can bring the discussion toward wrapping up. In the case at the time of purchasing the asset, there were no non-business activities to ensure that you qualify for the scheme. Here you need to know that you must keep accurate records of the purchased assets to qualify for the scheme.

In the case of VAT records, the requirement is to keep them intact for six years. We hope these few minutes of reading have helped to develop a better understanding and consider the salient features of the discussion.


Reach out to one of our professionals to know the best way to choose the correct way of knowing the Capital Goods Scheme for VAT and how it works for you. We will love to offer instant help!


Disclaimer: The information about the capital Goods Scheme for VAT provided in this blog includes text and graphics of general nature. It does not intend to disregard any of the professional advice.

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