ÑÇÖÞÉ«ÇéÍø

Introduction

The requirement to make adjustments to the deduction of input tax on capital items, more commonly known as the capital goods scheme, was introduced from 1 April 1990¹. The scheme was introduced in response to concerns that certain traders were recovering input tax in circumstances where the goods on which the input tax was incurred were not, in the long term, being used in a fully taxable business.

For example, a business making only taxable supplies, but which was planning to make exempt supplies, might purchase computers and obtain credit for the whole of the VAT incurred in a year in which it only made taxable supplies, even if it subsequently used those computers in its exempt business. The same situation could arise inadvertently, eg where traders purchased a computer intending to use it only in a fully taxable business but later expanded their business to include exempt supplies.

The scheme was extended for capital items obtained on or after 1 January 2011 to bring