The VAT Capital Goods Scheme (CGS) adjusts the initial VAT recovery in respect of certain assets over either 5 or 10 year period. The scheme seeks to agree a fair and reasonable attribution of VAT to taxable supplies and non-taxable supplies relating to the use of an asset over its lifetime. In effect, the recovery of VAT input tax following the capital expenditure, is spread out over a number of years rather than being recovered at date of purchase. The adjustment period for land and buildings is 10 years and for other CGS assets, 5 years. This adjustment period also considers any non-business use of the asset. The CGS is intended primarily for partly exempt businesses. However, businesses can change direction over the adjustment period and be subject to making CGS adjustments some years after an asset was purchased. HMRC’s guidance provides the following example to illustrate this point: '… you may use a building purchased for £300,000 plus VAT for wholly taxable purposes for six years. In year seven you diversify into an exempt activity - for example insurance - and base your new insurance team in this building. The building remains subject to the CGS and CGS adjustments may now be required.' Planning note: The CGS applies to: Readers who are contemplating capital expenditure in excess of these limits will need to plan for the cash flow effects, as recovery of the 20% VAT added will be delayed. Please call if you need more information on this topic. Source: HM Revenue & Customs | 09-08-2017VAT capital goods scheme