Tax tip: Capital goods scheme

The capital goods scheme can result in an unexpected VAT cost for a seller of a commercial building.

By way of a reminder SI 1995/2518 reg 113 includes provisions that bring capital expenditure of at least £250 000 plus VAT on the acquisition construction refurbishment fitting out alteration or extension of a building within the capital goods scheme. If a building is sold on an exempt from VAT basis within ten years of recovering VAT on such expenditure there is a requirement to repay a proportion of the VAT that was recovered by making an adjustment on the VAT return for the period of the sale.

For example a firm of tax advisers may buy the freehold of a new office for £1m plus VAT to use in its fully taxable business. The firm can recover the VAT of £200 000 on the...