A set of rules that determine the extent to which credit is given for input tax incurred on expenditure above a specified amount on certain land and buildings, computer equipment, aircraft and ships, boats or other vessels (Regulations 112-116, Value Added Tax Regulations 1995 (SI 1995/2518)). The rules operate by establishing an initial entitlement to deduction of input tax that is then subject to adjustment over a subsequent period of five or ten years if the subsequent use to which the assets have been put changes (for example, from taxable to exempt use or vice versa).

For further information, see Practice note, VAT and property: the capital goods scheme.