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Input Tax/Capital Goods Scheme definition


ˈɪnpʊt tæks/ˈkæpɪtl gʊdz skiːm
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What does Input Tax/Capital Goods Scheme mean?

Input tax/Capital Goods Scheme in a nutshell 
Input tax is the VAT which a VAT-registered business incurs on purchases (stock, overheads, capital assets) and which it uses for business purposes (non-VAT registered businesses and consumers will still incur VAT, but this won’t be recoverable as input tax). If the business makes only taxable supplies, it can recover all its input tax (with certain exceptions). If the business makes only exempt supplies, it cannot recover any of its input tax (and usually will not be VAT registered); if it makes both taxable and exempt supplies, it is partly exempt and can only recover the input tax attributable to taxable supplies. 

In the case of capital goods, it is possible that the use to which the goods are put may vary between taxable and exempt (and possibly non-business) over a period of time. The Capital Goods Scheme enables/requires a taxpayer to make adjustments to the original input tax recovery to reflect any variation over a five or ten-year period (depending on the nature of the goods) where the capital goods

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