The VAT Capital Goods Scheme affects input tax recovery in relation to high value capital assets, by partially exempt traders and businesses where assets are used for both business and non-business purposes.
The scheme aims to correct the amount of VAT recovered when the use of the asset in later years varies from that in the year of purchase, so the VAT recovered reflects the actual use of the asset over that period.
Assets that are included in the scheme are land, buildings and civil engineering work; computers and computer equipment and aircraft, ships, boats or other vessels.
If your asset is used only for making taxable supplies, you can reclaim all of the VAT you’ve paid. If you use the asset partly for business and partly for making exempt or non-business supplies, you can only reclaim a proportion.
The scheme does not apply to assets acquired for resale or any used for non-business purposes.
The VAT you can reclaim on an asset depends on the extent you use it to make taxable supplies during the adjustment period. If your use of the asset varies over the years you’ll have to adjust the amount of VAT you initially reclaimed. The adjustment period is made up of ‘intervals’ and the number of intervals depends on the type of asset.
Certain changes to your business during a Capital Goods Scheme period will impact on the treatment of your capital assets. For example, buying or selling your business or selling an asset during the adjustment period.
This is a complicated area and it’s advisable to seek professional advice. Contact us for an informal chat.
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